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December 31, 2008

Have housing prices dropped?

The turmoil in the housing and mortgage markets has been a big part of our economic troubles, and one of the fallouts has been a drop in housing prices. But have home prices really dropped, and is it that easy to determine?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"It's really not; in fact, there are three problems with measuring changes in home prices. One, the houses that sell aren't the same each year. Secondly, all homes don't sell each year, and thirdly, you have big geographical differences in home prices. There are several ways that economists have developed to measure changes in home prices. Some of the best look at what are called repeat sales, where you're tracking the same homes each year, so you take out the problem that the house that sells this year is not the same as the house that sold last year. There are also indices that are based on constructing statistically a typical home with its characteristics and then tracking the price of that. The conclusion of all these indices is that we are in a period of time - very unusual - where home prices are going down. All the indices show this. It's a matter of degree. Some of them show home prices falling 6 percent over the last year, some of them showing home prices falling 20 percent over the last year. Most of the forecasts for home prices indicate that this drop in price will continue into 2009, and indeed, it's really going to have to stop before the economy rebounds."

Posted by Dave at December 31, 2008 08:00 AM