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Rex Nutting
Aug. 20, 2010, 12:01 a.m. EDT · Recommend (5) · Post:
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First Take "º
Women take to the stores -- and pay full price
By Rex Nutting, MarketWatch
WASHINGTON (MarketWatch) -- Five years after the housing bubble began to pop, we're still cleaning the gum out of our hair.
Like it or not, the fate of the economy and the housing market are still deeply intertwined. We can't have a booming economy again until housing is healed properly. And, unfortunately, the cure for the bad housing market is a better economy. And time.
The story of what happened when the bubble popped and everything crashed to the ground is complicated and has been told well elsewhere.
Simon Constable and Lauren Goode discuss BlackBerry maker Research In Motion's apparent move to acquire a mobile advertising network.
But at the heart of the story is one thing: home prices. When they were rising, everyone benefited. But when they fell, like a reverse Midas, everyone and everything they had touched turned to crap.
Some banks failed, others were rescued to prevent a bigger crisis. The global economy teetered on the brink anyway. Millions around the globe lost their jobs, their savings, or both.
U.S. homeowners lost more than $7 trillion on paper, and many lost something more vital than that: a roof over their head, good neighbors, a piece of the rock, faith in the American dream.
Five years later, home prices are still one of the biggest risks in the economy. Why? Because despite having fallen 30%, prices may still be too high. We know what happens to the economy when home prices fall: Foreclosures, bank failures and reduced consumer spending.
When I say home prices are too high, I don't mean that I know what homes should cost. I mean prices are too high for current supply and demand. Supply is high, demand is low, and that's a recipe for falling prices.
The government has thrown a lot of resources at this problem, with the explicit goal of stabilizing home prices by reducing supply and increasing demand.
But the government has had only modest success. The Federal Reserve has lowered mortgage rates, but demand has not risen as desired.
The bipartisan, demand-side homebuyer tax credit and the many programs on the supply side to reduce foreclosures have failed. Demand is still weak, and supply is still too high, especially considering all the foreclosures yet to come.
Many people think it's foolish for the government to try to prop up home prices. The sooner we get this behind us, the better, they say. Let prices fall!
But that attitude could doom the economy to another vicious cycle of foreclosures that could lead to even more job losses and further foreclosures, and so on.
The big shots in Washington held a summit this week to talk about what the government should do about housing. Lots of insiders and outsiders were there, but there was one big name notable for his absence: economist Dean Baker, who warned about the housing bubble for years. No one who mattered listened to him then. (They didn't listen to his warnings about the stock market bubble, either.)
The female shopper has returned, and she's ready to buy, at least judging by the latest results from AnnTaylor, writes Angela Moore.
12:19 p.m. Today12:19 p.m. Aug. 20, 2010 | Comments: 16
- DavidRicardo | 11:23 p.m. Aug. 19, 2010
"U.S. stocks tumble as economic woes linger http://bit.ly/9OcdWM" 11:57 a.m. EDT, Aug. 20, 2010 from MarketWatch
"Losses steepen for U.S. stocks; Dow industrials slide 100 points at midday http://on.mktw.net/bSDVmp" 10:48 a.m. EDT, Aug. 20, 2010 from MarketWatch
"U.S. stocks open with modest losses; Treasurys score fresh gains as dollar rallies on euro http://on.mktw.net/d7S9wh" 8:38 a.m. EDT, Aug. 20, 2010 from MarketWatch
"European stocks rise early; deal activity out of the oil sector buoys energy shares http://on.mktw.net/a9uzCF" 2:20 a.m. EDT, Aug. 20, 2010 from MarketWatch
"South Korea's state-run oil firm KNOC launches $2.9 billion hostile bid for U.K.'s Dana http://on.mktw.net/apffQb" 1:38 a.m. EDT, Aug. 20, 2010 from MarketWatch
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