Tuesday, August 28, 2007

Falling Home Prices May Signal Recession


The world has been flipped upside-down for a lot of homeowners right now, especially for those that have taken loans out against their recently bought homes. This is quite a shock for those that expected the value of their homes to increase, which has been the norm for many years now.

However, homeowners are now having difficulty meeting their mortgage payments. Plus fewer young people have the money to pay the inflated prices for homes. Simple supply and demand dictates that as demand for a product goes down, the price that will be bid for a product will go down. As foreclosures increase over the next year, the supply of homes on the market will rise, which will also tend to force prices further down.

The S&P/Case-Shiller reported today that home prices have fallen faster than they have in 20 years. (click here to see article) This could continue for some time, barring a bailout by the government, and could spread to the rest of the economy. These falling prices may be signaling the beginning of a recession. Remain cautious with your money. Until this crisis gets closer to an end, investors may want to stay in conservative stocks, govt. bonds, or in cash for the next few months.

These are just my thoughts and opinions. Do your own research and consult a professional financial advisor before making any investment decisions. See you next time. --------Sincerely, Trevor Stasik.

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