Remember when all you had to do was buy a house and live in it as the price went up? It’s only been a few months of dropping prices here in Vancouver, but in the US it’s getting harder to remember the good old days.
Call it the American dream that died. The slump in U.S. housing, now more than three years old, is the most severe since the Great Depression. A move by the government to revive the market – through a tax credit for first-time home buyers – met with some success earlier this year, but after the credit expired, sales collapsed in July. Now economists fear further declines in home prices, which have already fallen 30 per cent since their peak in 2006.
The days when Americans could count on their homes as the pillar of their financial affairs – a seemingly magical asset, bought with borrowed cash but steadily increasing in value, tapped to fund college tuitions, second homes, and retirement travel – are past. Even if the market eventually recovers, as many expect, the era of the home-as-nest-egg is over for the foreseeable future.
In this brave new world, housing prices don’t always go up, and if they do, the pace is more likely to be in line with inflation. People can find themselves trapped in their homes, unable to sell because their house is worth less than what they owe on their mortgages, a condition now shared by one in four U.S. homeowners.
Read more about the fundamental shift in the US housing market over at the Globe and Mail.