If Housing Prices Stopped Rising

According to the latest stats, American home prices are still on the rise – in most major markets across the nation.

The National Association of Realtors published a median increase of 4.2% from 1/06 to 4/06. Compare this figure to the published 16.6% last year.

Although prices appear to be leveling off, many economists don’t predict a sour turn for the worst. If housing prices were to weaken, logically the fed would cut rates. This is clearly not happening with rates at a 4 year high (currently 6.7%). A clear indicator that the housing market is still strong. And it would take a serious and unexpected shock to our economy to change that. Year on year, aggregate average US home prices have not fallen since the Great Depression.

So what does this “slower” growth mean to the economy as a whole? And why should I care about housing prices, if I currently am not a homeowner?

The housing market is a powerful motor which drives an economy. Homeowners “feel” richer, and that drives consumer spending. If housing prices stopped rising at these sharp rates, and only increased moderately from year to year (or remain stagnant), this has the potential to create a serious dent in the economy as a whole.

Even the non-homeowners like myself will surely be affected. And I’m a little bit worried.

My first blog entry, and my 2 cents.