Sunday, September 02, 2007

Bad outlook for homeowners

The L.A. Times talks with economist Dean Baker:
Question: What does a bursting housing bubble mean to the average homeowner?

Answer: It's going to be very bad news. People will see large drops in the prices of their homes. From 2002 to 2005, people borrowed at a rapid rate against their homes to buy other homes, take trips, pay bills. Once house prices start falling, owners lose that source of wealth. Now that credit is tightening, it could get worse. A lot of people who would have bought homes can't.

This is worse than the 1990s' recession -- they didn't have a comparable run-up of prices then. We'll still have a vibrant economy, but middle-income people will be hit hard. Losing $150,000 on a home will affect their living standards for a long, long time.
Dean Baker has been warning people about the housing bubble for a couple of years.He obviously hasn't been on the payroll of the National Association of Realtors or Fannie Mae.