What's good about falling home prices?

Would you be comforted to know that you might lose most of your home equity in the coming year? Would you be better able to plan? Here is a surprising opinion from the Center for Economic and Policy Research.


Home prices could be stabilized by lowering them further, a report from the think-tank Center for Economic and Policy Research suggests.

The proposal calls for 20 percent to 30 percent price cuts in the priciest markets, driven by restrictions on lending by Fannie Mae and Freddie Mac.

The center proposes that Fannie and Freddie use rent-based appraisals, saying that drastic declines would protect future homebuyers from paying “bubble-inflated prices on which they will subsequently lose money.”

What about current homeowners facing big drops in home value and wealth? “If homeowners will lose most of their home equity over the next year, it is better that they recognize this fact as soon as possible so that they can adjust their behavior accordingly,” the report says.

Source: U.S. News & World Report (12/03/2008)