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May 31, 2011, 10:44 a.m. EDT
By MarketWatch
WASHINGTON (MarketWatch) "” Housing is still holding back the economy, nearly five years after the bubble began to deflate. And there's no end in sight.
To no one's surprise, U.S. home prices dropped to a new cyclical low in March, according to the Case-Shiller home price index released on Tuesday. Prices are down 34% from the peak in 2006, and have fallen 5% in just the last year. Prices have declined every month since the expiration of the federal government's misguided tax break for home buyers. Read our full report on the decline in the Case-Shiller home price index.
There's been lots of ink spilled over the past two years about why this economic recovery has been so awful. We've gotten distracted by side debates about whether the government has done too much or not enough, about whether there's something lacking in our workers, or about whether the evil bankers are to blame.
Regardless of the merits of those other debates, we shouldn't lose sight of the fact that the biggest reason the economic recovery has been so weak is housing. After a typical recession, policy makers can count on the housing market to act like a booster rocket that puts the economy back in a self-sustaining orbit.
But that hasn't happened this time. The excesses of the bubble years are still being worked off. Too many families owe too much on their mortgage. Too many banks hold too much worthless paper backed up by not enough collateral. Too many homes are being dumped on the market at fire-sale prices.
It's the debt that's the problem. Unfortunately, falling prices only make the debt burden tougher to handle. But lower prices are needed to revive the industry.
Mortgage lenders and servicers need to face the facts: You lent out too much money and you will never, ever be repaid. You need to get serious about loan modifications, so you, the homeowners and the rest of the economy can move on.
Otherwise, it's going to be years before housing stops being an anchor weighing us down.
"”Rex Nutting
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