Housing Inventories Grow, As Housing Prices Continue Plummeting

Housing prices drop 11.3 percent, that largest descent in 40 years. One might expect that to bring on a bargain home buying frenzy. No such luck, potential home buyer are staying put. The National Association of Realtors (NAR) reported existing housing sales taking a similar decline, down 3.1 percent, continuing to increase already bulging housing inventories.

All of the conditions would seem to be attractive for a home buyer to get in the market: the 30-year fixed-rate mortgage is down to nearly 6 percent, the median home price has dropped into the affordable range for median incomes in most markets, the housing market is full of foreclosures and banks sales willing to sell for a song. What is problem?

Unfortunately, the same crisis of confidence that strikes panic into the stock market about every other day is hitting Main Street. And Wall Street is part of the problem.

Potential home buyers are looking at major hits to 401(k)'s and recalculating their retirement time horizons. Likewise, they are looking at investment losses and pausing on big purchases and wonder about their kids college tuition.

The same people are recoiling from any long-term financing that might depend on their less certain employment status, with the US shedding over a half million jobs last quarter.

All the major indicators point to less certain times. And this uncertainty is feeding a much less rational crisis of confidence.

A crisis that has people running to withdraw their investments and immediate realize what was before only a paper loss. Or, take money out of banks in favor of safe keeping under flammable mattresses.

A crisis that has them wave off dream homes at 30-40 percent discounts. And, ignore mortgage rates that are approaching 2004 levels (remember the heyday of mortgage refinancing?).

Irrational or not the confidence is eating the economy away in large chunks and making Americans do things that are baffling economist into recalibrating their models.