Tuesday, October 30, 2007

On the Prices Of Housing

The New York Times has an article today on the declining prices of houses and condominiums. Its headline says "Home Prices Are Down, and So Is Confidence". The confidence it refers to is consumer confidence, an important predictor in how much people are going to spend in the near future. That, in turn, determines (partially, given that there are governmental consumers and foreign consumers, too) how much firms can expect to sell, and that determines how many people they are going to employ and how much profit they have for investments and spending in general. See the importance of that headline?

Now, declining prices of houses might not be a bad thing if you are planning to buy. But they are a bad thing in this economy, one which was planned to be fueled by the housing market, by people borrowing on the value of their houses and by the whole subprime loans spectacle. If housing is what has been used as the way to store wealth and to enable more consumption, then a dropping value of that store of wealth is very bad news indeed. And we have not yet seen the echo effects on other markets.

Perhaps the one bright aspect of all this is that the United States is no longer the one engine that fuels the world economy by its consumption patterns. Thus, to some extent the problems here may not become worldwide problems, ready to come back to hurt the U.S. economy even more. Still, the time is now to amend the legislation so that something like the subprime loan bubble cannot happen again.