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Falling Home Prices Continued Drag on U.S. Economy

July 22, 2008 12:47 PM

ABC News’ Charles Herman reports: Average U.S. home prices dropped 4.8 percent in May from a year ago, according to a government report released Tuesday morning.

The Office of Federal Housing Enterprise Oversight calculated the drop in prices by examining the sales of homes owned by or guaranteed by Fannie Mae and Freddie Mac. From April to June, home prices dropped about 0.3 percent. Since housing prices peaked in April 2007 they have dropped an average of nearly 5 percent, although the decreases have been much larger in some parts of the country.

Ap_house_sale_080722_main_2 OFHEO regulates Fannie Mae and Freddie Mac. The two mortgage financing giants became household names in the last several weeks after their stock prices plummeted and the government announced a series of bailout proposals.

Treasury Secretary Henry Paulson has embarked on a public speaking tour to get Congress to act quickly on the proposals made a week ago last Sunday. This Sunday he was on CBS’s “Face the Nation.” Monday, he met with reporters and editors at the New York Times and on Tuesday, he gave a speech at the New York Public Library.

Critics of the plan worry it would be the equivalent of giving the two companies -- which own or guarantee nearly half of the outstanding mortgages in the country -- a blank check secured by taxpayer dollars.

My colleague Lisa Chin in Washington, D.C. attended a briefing by the Congressional Budget Office this morning about the potential impact of the administration's plan on the federal deficit.

She reported that Congressional Budget Director Peter Orszag said the Treasury's proposal for a potential Fannie/Freddie bailout might cost the government about $25 billion.

Orszag said there was a better than 50 percent chance that the government might not need to expend any money to help the ailing Freddie and Fannie. He said there was a 5 percent chance that a bailout could cost the government as much as $100 billion, if a worse-case scenario came to fruition.

Formal legislation has not been introduced to the Congress as of yet. A full copy of Orszag's letter to the chairman of the House Budget Committee can be found here.

Later this week, the National Association of Realtors will report existing home sales for June and the Census Bureau will release new home sales in June. Both reports are expected to show further declines in prices and total sales.

Many economists believe that the nation’s current downturn will end when home prices stop dropping and sales start increasing. That might not start to happen, however, until 2009.

July 22, 2008 | Permalink | User Comments (30)

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Stimulus Package "Deja vu", Not really!

As the brains of our economy continue to brainstorm how to get us out of the mess the real estate market first got us in and now high gas prices and a declining economy over all, the easy way out seems to be again an economic stimulus package.

Not so fast, not again.

First- president bush opposes it.
Second- according to the experts, only 20 percent of the people who got stimulus package number one said the rebate led them to spend more and the rest, well it seems that the rest just took the money and put it into their savings account.
Economic stimulus package number one was suppose to get our slow economy going, by then president bush had not heard of a 4 dollar a gallon of gasoline.
By now that's old news and as he put it on he's own words "he's heard of it now".
Well now mr president, one gallon of gas almost hits the 5 dollar mark have you heard of it?
Anyhow, the 100 billion dollars in checks that circulated among many americans ($600.00 for singles and $1,200.00 for couples) apparently didn't help.
The money went out on time and gas prices went up just on time as well.
With gas prices, food prices also went up.

Isn't that how it usually works?
Gas prices go up and everything goes up, after all business have to make up for the extra expenses and they just pass the check onto us.
Here's an idea!
How about lowering the tax on gasoline?
Do we really know how much money we pay on gas taxes in the U.S?
Aren't this taxes imposed by our government, well maybe our government can really give a stimulus to our morale and lower the taxes we pay on gas prices.
A lower tax in gasoline prices will stimulate business and consumers, it's not rocket science!
A quote by wikipedia: "Fuel taxes in the United States vary by state. For the first quarter of 2008, the average state gasoline tax is 28.6 cents per US gallon, plus 18.4 cents per US gallon federal tax making the total 47 cents per US gallon"
http://hardmoneyloans.org

Posted by: yanni raz | Jul 23, 2008 10:53:47 AM

re: "Many economists believe that the nation’s current downturn will end when home prices stop dropping and sales start increasing."

BWAHAHAHA!

How are people supposed to be able to buy homes unless the prices drop? Housing is still so overinflated relative to wages that it has a long way yet to drop before it will be affordable for most folks -- Not to mention that lending standards have been tightened, meaning far fewer can even qualify to buy these hyperinflated homes.

Posted by: Scorpio69er | Jul 23, 2008 2:36:52 PM

Allow these financial lenders to sink or swim. They knew the risks when they signed on to see the mortgage.

As for our elected federal representatives and senators... they are a joke! They're completely impotent in this matter and all others. I guarantee they will manage to vote themselves a pay increase while the overwhelming majority of Americans cannot feed their families.

I cannot recall the last time I voted for an incumbent. American, it is time to show all these leeches the door and voted every one of them out of office.

Posted by: OpusRooster | Jul 23, 2008 2:56:55 PM

Of course home prices are falling, its called a "market correction" for all of the overinflated prices that the housing bubble caused. No government handout is needed, this is a cyclical industry that will bounce back in time. Man, some of these supposed "analysts" really need a course in Economics 101.

Posted by: Tom G | Jul 23, 2008 4:27:52 PM

If my property value is going down, why aren't my property taxes going down also?

Posted by: ol_luke | Jul 24, 2008 9:03:32 AM

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