Housing prices dropping down toward sensible

Real estate people took great comfort Tuesday in the fact that a housing price index dropped only 18.1 percent in April, the third straight month the decline didn’t set a record, and, get this, yearly losses in 13 metropolitan areas were still significant but not as bad as in March.
Hip, hip, hurray?
The Associated Press real estate writer went on to report that new mortgage delinquencies were climbing much faster than modified mortgages were being created and that about 25 percent of homeowners who do manage to get their mortgages modified so that payments are lowered fall behind again within six months.
These sobering facts demonstrate once again that the collapse of the real estate market was the major cause of the recession — and that if a bottom has been reached it will be a hot day in the Arctic Circle before home prices return to 2007 levels.
Since the average U.S. family has most of its wealth in its house, falling prices make families feel poor. The feeling becomes bitter reality when the house is lost to foreclosure.
The psychological effect has had the salutatory effect of slowing spending and increasing savings. When consumers stop spending the economy dips. But that’s an acceptable long-term tradeoff. Saving is a good thing. If the habit turns permanent the next recession will be shorter and less painful.
It will also be a good thing if the real estate debacle puts an end to McMansion mania. America’s small families don’t need houses with 6,000 square feet of living space, a bathroom for every member, skating rink-sized family rooms and four-car garages. More to the point, money lenders shouldn’t finance houses that purchasers clearly should not afford.
Call it a cold shower; call it a much needed wake-up call, it was about time that the good, old, U.S. of A. got real about housing.

— Emerson Lynn, jr.