Isn't This What's Supposed To Happen?
The LA Times this morning has what has to be taken as a gloomy report about the economy, citing an UCLA study that says a recession is possible in the not too distant future.
The story talks about falling housing prices and declining new home starts as reasons for the economic troubles. Here's are the two key sentences:
And home values will fall 10% to 15% from their peaks, the forecast says, meaning that sliding prices have yet to hit bottom.
Other examples of the economists' increased pessimism include a prediction of fewer housing starts. The group sees them bottoming out at 1 million units annually, down from the previous forecast of about 1.2 million.
Isn't the drop in housing starts a sign that the market is working just fine and is finding its own way back? Lower housing prices should mean that there will be less of an incentive for developers to build new homes, fewer new homes means that the existing large inventory of homes available to be sold will start to drop, and that should lead...drum roll, please...to higher prices for homes.