Housing Prices…

…are down, The Wall Street Journal reports, with potential troubles for the economy lurking:

Rising home prices plus refinancing options and home equity loans previously allowed homeowners to squeeze money out of their homes to finance their spending – an important trend because consumer spending fuels about 70% of economic growth. Economists now worry that falling home prices will prompt consumers to pull back on spending enough to slow growth or even tip the economy into recession.

I’ve written earlier about people who have taken out home equity loans or refinanced mortgages in order to buy Lexuses and other necessities. I wonder, however, how many such people there are, and how much impact their troubles can really have on consumer spending. Prudent consumers have not done those things; their spending, one can expect, will remain unaffected.

In fact, couldn’t this just as easily be spun as good news? Greg Mankiw headlines his post today: “Housing becomes more affordable.” People who couldn’t afford houses before will now be able to afford them. Moreover, new home buyers, as well as those trading up from existing homes, will have to spend less on housing, thus making more of their income available for other purchases.

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