Housing prices have fallen five percent since their peak July 2006, according to the September Standard & Poor's Case/Shiller monthly index, but the damage isn't as bad as the financial press makes it out to be. While Robert Shiller, chief economist for MacroMarkets LLC notes that the 1.7 percent drop in 20 index markets is the biggest single slide ever, the aggregrate 4.5 percent year-over-year slide is nothing compared to the 10 percent bath stockholders took just this month.

Housing prices and stock prices are down for the same reason -- fears about the economy and the ability of borrowers to access credit. Home buyers are being told by the financial press that housing prices haven't dropped enough to qualify as a true correction, and that prices will drop further. Who's going to buy when lower prices are coming? And for many, lower prices is the only way home buyers can afford the homes they want.

Some buyers may get their wish. In a recent study for U.S. mayors by Global Insight on the impact of foreclosures, it was found that weak housing, construction, spending and income will impact the economy, with major cities such as New York, New York ($10.4 billion), Los Angeles ($8.3 billion), Dallas and Washington ($4 billion) and Chicago ($3.9 billion) losing billions of dollars in economic activity in 2008. The report also predicts property values will decline by $1.2 trillion with drops in home prices averaging 7 percent across the U.S.

Most banks have announced heavy losses due to the inability to sell their subprime loans to investors and get fresh cash to loan out to new borrowers. Homebuyers can still get loans, but the market is not as generous for non-conforming or subprime loans. That impacts over 50 percent of homebuyers considering how people bought homes during the boom when credit was easy. Subprime loans were 10 percent of the market and other non-conforming loans such as interest-only or no-doc loans were as much as 40 percent.

The only other thing that can lure buyers back to the market is interest rates so attractive that buyers can't resist. This week, mortgage interest rates for conforming loans dropped below 6 percent for the first time in over a year.

That should be an attractive level to get people to lock in, but that doesn't mean buyers will rise to the bait. Mortgage rates can be refinanced, but the price of a home can't be renegotiated after closing. And consumer confidence, according to the Conference Board, has sunk for the fourth month in a row. Despite an optimistic start to the holiday season, gas prices, home equity losses, and wobbly financial markets are impacting consumer spending.

As usual, the coastal markets are whipsawing the national picture. Home prices are down 11.1 in Tamp, Florida, and 10 percent in Miami. Yet, year-to-year prices are up in Charlotte, North Carolina and Seattle -- a 4.7 percent gain each. Yet the malaise is affecting healthy markets -- prices in Charlotte and Seattle fell by a fraction for the quarter.

It remains to be seen if home buyers will take advantage of interest rates below six percent, but we should know more when the Mortgage Bankers Association releases its weekly application survey next Thursday.

Editor's note: The S&P/Case-Shiller® National U.S. Home Price Index tracks the value of single-family housing within the United States. The index is a composite of single-family home price indices for the nine U.S. Census divisions and is calculated quarterly. The S&P/Case-Shiller® Composite of 10 Home Price Index is a value-weighted average of the 10 original metro area indices. The S&P/Case-Shiller® Composite of 20 Home Price Index is a value-weighted average of the 20 metro area indices. The indices have a base value of 100 in January 2000; thus, for example, a current index value of 150 translates to a 50% appreciation rate since January 2000 for a typical home located within the subject market.

Published: November 28, 2007

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Blanche Evans is the award-winning senior editor of Realty Times, the Internet's leading independent real estate news service. She is featured daily on the Realty Times Video Network in the "Realty Viewpoint" segment. Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and has been twice recognized as a "notable." In 2005, she was named "Top Reporter Covering the NAR" by Delahaye-Bacon's. Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. To contact Blanche, email her at . For more articles by Blanche, click here.