When Falling Housing Prices Signal Good or Bad Economic News
9 reported
A reader question about falling housing prices in Denver prompted an NPR analysis of when such declines benefit or harm the economy. Karl Baumgartner, a 29-year-old internal medicine resident in Denver, reported that home prices in the metro area have fallen more than 2% year over year, with rents dropping even more. He and his friends, as renters, are excited about the decrease, with one friend renegotiating a lease for about $500 less per month. The article explores two scenarios: falling prices can be a healthy sign of increased supply catching up with demand, as in Denver, or a symptom of economic collapse, as in Detroit, where home prices fell by more than 80% during the 2000s housing bust. Economists interviewed note that demand-driven declines often signal broader problems, while supply-driven declines are typically healthier. The article also discusses how falling prices can hurt homeowners through the wealth effect and underwater mortgages, but can free up renters' incomes for other spending.
What’s reported
Denver metro area home prices have fallen more than 2% year over year according to the S&P Cotality Case-Shiller Home Price Index.
Rents in Denver have fallen even more dramatically than home prices.
Karl Baumgartner, a 29-year-old internal medicine resident in Denver, says he and his friends are "ecstatic" about falling prices.
One of Baumgartner's friends renegotiated her lease for about $500 less per month by showing her landlord comparable apartments were cheaper.
Detroit lost nearly a third of its population between 1990 and 2010, and home prices fell by more than 80% during the housing bust of the 2000s.
In 2007, houses in Detroit were cheaper than cars, and the city has had an official program to demolish abandoned homes.
Economists Daryl Fairweather (Redfin), Eric Zwick (University of Chicago), and Misha Fisher (Zillow) are quoted in the article.
Research by Chang-Tai Hsieh and Enrico Moretti estimated that "stringent housing restrictions" lowered U.S. economic growth by 36% between 1964 and 2009, though Zwick says subsequent research found that effect was overestimated.
Kevin Matthews of Denver YIMBY recalls a large Denver employer expressing concern about lack of affordable housing.
Key figures
Karl Baumgartner, 29-year-old internal medicine resident in Denver
Daryl Fairweather, chief economist of Redfin
Eric Zwick, economist at the University of Chicago Booth School of Business
Misha Fisher, chief economist of Zillow
Kevin Matthews, representative of Denver YIMBY
Chang-Tai Hsieh, economist (mentioned in research)
Enrico Moretti, economist (mentioned in research)
Sources: NPR
