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No End In Sight For Falling Home Prices


This is ALL THINGS CONSIDERED from NPR News. I'm Robert Siegel.


And I'm Melissa Block.

The U.S. housing market is in one of the worst slumps in history. Prices started falling more than five years ago, and they're still sliding. Foreclosures are at record highs. And nearly one American in four with a mortgage is underwater, meaning they owe more than their house is worth.

NPR's Chris Arnold reports.

CHRIS ARNOLD: Housing actually picked up a bit last year, when the federal government offered tax credits for people who bought houses. That was supposed to light a small fire under the frozen market. But, by now, that fire has gone out. Prices are falling again, and sales are still pretty slumped. And that's bad for many homeowners, and it's also bad for all kinds of housing-related businesses.

Mr. CHRIS HOCH (President and Owner, National Fiber): I know companies who have contracted by half.

ARNOLD: Chris Hoch is standing on the factory floor of his cellulose insulation business. It's called National Fiber. The company makes insulation out of recycled paper. And you can see here yesterday's newspapers that didn't sell are brought in at one end of the factory on forklifts. And tomorrow's insulation for houses is packed up into plastic bags at the other end.

Hoch says it's environmentally friendly, and it works.

Mr. HOCH: This is the best performing insulation. It is so much better than the others. And on top of that, it's green.

ARNOLD: But as the housing market and the economy suffered, Hoch says this industry has seen a lot of layoffs.

Mr. HOCH: The biggest company in the industry at one point had 15 plants - 14 plants. And today, I think they have about seven or eight of them running.

ARNOLD: And some analysts say this downturn might be far from over. Robert Shiller is a prominent economist and a professor at Yale University, and he's been closely tracking home prices throughout the downturn.

Professor ROBERT SHILLER (Economics, Yale University): There seems to be a general intuitive idea that this has to be the bottom, and I say no. We may not have reached the bottom yet. That downside is still very real.

ARNOLD: Shiller says that most Americans don't know the real story when it comes to house prices. In recent decades, the mantra has become that over time home prices go up. And house prices did go up for a long time after World War II. But Shiller says looking back over longer stretches of history and adjusting for inflation, you see a very different story.

Prof. SHILLER: Basically, you know, I found that with my data - going back to 1890 - the price of housing hasn't shown any trend in real terms, so that home prices have been just about flat for a hundred years.

ARNOLD: Or you can go back and look at the prices of houses in Amsterdam in the 1600s.

Prof. SHILLER: And you know what? They're selling for not much more than they did in 1630, to the extent that we can measure that.

ARNOLD: Robert Shiller says that people think of home prices like the stock market and expect that prices will rise, say, on average, 5 to 7 percent a year over long periods of time. But he says if houses really kept rising in value like that - you do the math - houses today would have to be really, really, really expensive.

I guess, like you say, if houses really went up at 7 percent a year, it would cost like a billion dollars to buy one of those houses in Amsterdam, right?

(Soundbite of laughter)

Prof. SHILLER: And actually, I think - they actually have a little premium on them, because they're beautiful old houses, but you don't have to pay a billion to get one.

ARNOLD: The takeaway from all this, Shiller says, is that prices do not have to bounce back up anytime soon. There are still millions of foreclosures that are likely to occur. And at the same time, the government is talking about re-tooling its role in mortgages, and it might require larger down payments for some loans.

Prof. SHILLER: I think it's very hard to forecast now, because we're in the aftermath of the biggest bubble we've ever seen in the U.S. So, you know - and statistical models don't tell us what to expect.

ARNOLD: Still, there are other well-respected economists who are more hopeful.

Professor WILLIAM WHEATON (Departments of Economics and Urban Studies and Planning, MIT): You know, I think we're really at the bottom and the turning point.

ARNOLD: William Wheaton is a housing economist and professor at MIT. He says that the pace of sales has already started to pick up a bit. And he says for anyone thinking about buying a house...

Prof. WHEATON: You should really buy this year.

(Soundbite of laughter)

ARNOLD: Really?

Prof. WHEATON: Yeah. I seriously suspect that prices will be rising by the end of this year, and they sure should be in 2012.

ARNOLD: There are a lot of realtors, underwater homeowners and people running businesses who hope that that prediction turns out to be right.

Chris Arnold, NPR News, Boston. Transcript provided by NPR, Copyright NPR.