Housing Market – Stabilazition or Continued Drop?

Futures contracts that trade on the Chicago Mercantile Exchange forecast a further decline of 14.5% by November 2010, after which home prices likely will begin to revive.

Joseph Davis, the chief economist of Vanguard Group, agrees. Even if the tax break were immediate, "it's not going to be very effective," he says. "It's a down-payment issue. The (credit) door has closed shut for many households. And negative home-price psychology has them on the sidelines."

A subsidy to help buyers meet down-payment thresholds "would have been the biggest bang for the buck in housing stimulus," Davis says.

Overall, Davis judges the massive steps the federal government is making to address the current economic malaise to be "necessary but not a sufficient condition for economic stabilization. And the reason is, they do not directly address the two sources of considerable stress in the economy: One is the issue of solvency in the banking sector, and the second front is housing, and they're both related."

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