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News Link • Housing

5 Years Of Falling Prices, But Homeowners Still in Denial

I don’t have hard statistics on this — I don’t know whether they exist or how they would be put together — but I think it’s fair to say that the overwhelming majority of US homes have fallen in value since the start of the recession. Which means, essentially, that most Americans are wrong. What does this mean? During the boom, Americans were hyper-conscious of how much their homes were worth. During the bust, they’re in denial. This is probably good for national happiness, but it’s also bad for the future of the housing market — and partially helps to explain why houses sit on the market for so long at a price no one is willing to pay. This syndrome also contributes, I think, to the relatively low rate of jingle-mail, or underwater homeowners simply walking away from their homes and leaving the bank with the house. It’s the economically rational thing to do — but only if you know that you’re underwater. And given that it’s non-trivial to work out how much your house is worth, I can easily imagine that a large percentage of underwater homeowners don’t know that they’re underwater. While ignorance of depreciated property values seems to be prevalent everywhere...

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