2009 February 11 Wednesday
First Time Buyers Helped By Dropping Home Prices

Declining home prices are good news. Lower prices are better than higher prices. Lower prices make goods and services more affordable and raise living standards. You do not hear that in the news media coverage of the financial crisis. But first time home buyers are finding much more affordable housing than just 2 or 3 years ago.

The housing bust is creating a new group of winners: first-time home buyers. People who sat on the sidelines -- often watching wistfully as their friends became homeowners -- are suddenly in a position to grab some great deals. Indeed, first-time home buyers made up 41% of all buyers at the end of 2008, up from 36% in 2006, according to a recent survey from the National Association of Realtors.

The new buyers are being lured in by home prices that are down about 25% from their peak levels in mid-2006, according to the S&P/Case-Schiller Index. In some markets, prices have dropped even further -- slumping around 40% in Phoenix, Miami and Las Vegas. Lower mortgage rates have also helped make real estate more affordable, and as houses languish on the market longer, more homeowners are willing to negotiate. With Congress considering plans to sweeten a tax credit for first-time home buyers, the picture could get even brighter.

Incentives for first-time home buyers are a bad idea. We are still trying to get over one housing bubble. This is not the time to try to start up a new bubble.

High prices make the large number of existing owners feel good. That biases politicians toward favoring high prices. But low prices are good, not high prices.

What I want to know: have lot prices fallen more or less than house prices? Construction costs have fallen too. So in each market have housing prices dropped below lot cost plus construction cost?

Share |      By Randall Parker at 2009 February 11 10:57 PM  Economics Housing


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