Even more bad economic news from a report released today: Housing prices will remain depressed for years, dropping by an expected 2.5% this year and rising only 1.1% each year through 2015, according to the survey of more than 100 economists. Since the 2005 peak, housing prices have dropped 31.6%, so if this forecast plays out, prices will recover little of what has been lost—leading to what the Wall Street Journal calls a “lost decade.” In order to get the housing market back on its feet, the economy needs to add jobs, but that’s a difficult prospect when the economy, in turn, needs a job boost housing would typically provide.
The result will be millions of homeowners with little to no equity in their homes; rapidly disappearing equity—$7 trillion lost so far—has already led to decreased consumer spending. Builders and mortgage analysts share the economists’ fears. "With all of the economic turmoil, both domestic and international, there's not much that points to an improving housing market at any point in the near future," says one builder exec. A cycle could result: More underwater mortgages and foreclosures leading to more credit tightening, leading to an even smaller pool of home buyers—meaning fewer people to purchase newly foreclosed homes and fewer jobs in new construction. (Read more housing market stories.)