|
Report from the Center for American Progress:
Dark economic clouds are gathering ahead. After six years of booming home prices, the great American housing bubble has finally popped, and the market is now on the verge of collapse. Tens of millions of families who bought homes at bubble-inflated prices "now face the prospect of seeing their life savings disappear." This development will have wide-ranging effects on the American economy. "Over the last few years," writes Princeton economist and New York Times columnist Paul Krugman, "most good U.S. economic news has been the result of soaring home prices." With this engine of economic growth now broken down, America faces a potential future of "rapidly falling house prices, rising default and bankruptcy rates," lost jobs, fewer consumption, even a possible recession. The dark clouds ahead may be a perfect storm hitting the U.S. economy. (Read "The End of the Great American Housing Boom," a new report by American Progress Senior Economist Christian Weller.)
THE GREAT AMERICAN HOUSING BOOM: Over the past decade, home prices in the U.S. have climbed to never-before-seen heights. Traditionally, home prices tended to rise at the same pace as rental costs (since both reflect the price of a roof over one's head). In 1975, the home price index was equal to 108 percent of the rent index. By 2000, the ratio of home prices to rents had jumped above 130 percent for the first time. By the beginning of 2006, the ratio of home prices to rents had grown to a whopping 178 percent. Similarly, home prices compared to other prices remained relatively stable until 1999, when the ratio of home prices to other prices surpassed all previous ratios and grew to 208 percent at the beginning of 2006.
|