The median price of American homes is expected to fall this year for the first time since federal housing agencies began keeping statistics in 1950.
Economists say the decline, which could be foreshadowed in a widely followed government price index to be released this week, will probably be modest - from 1 percent to 2 percent - but could continue in 2008 and 2009. Rather than being limited to the once-booming Northeast and California, price declines are also occurring in cities like Chicago, Minneapolis and Houston, where the increases of the last decade were modest by comparison.
The reversal is particularly striking because many government officials and housing-industry executives had said that a nationwide decline would never happen, even though prices had fallen in some coastal areas as recently as the early 1990s.
Forecasters now say they believe that the impact of the housing slump will lead to an economic slowdown over the next year or two.
In recent years, many families used their homes as a kind of piggy bank, borrowing against equity and increasing their spending more rapidly than their income was rising. A recent research paper co-written by the vice chairman of the Federal Reserve said that the rise in home prices was the primary reason that consumer borrowing has soared since 2001.
Now, however, that financial cushion is disappearing for many families. "We are having to start from scratch and rebuild for a down payment," said Kenneth Schauf, who expects to lose money on a condo in Chicago he and his wife bought in 2004 and have been trying to sell since last summer. "We figured that a home is the place to build your wealth, and now it's going on three years, and we are back to square one."
On an inflation-adjusted basis, the national median price - the level at which half of all homes are more expensive and half are less - is not likely to return to its 2007 peak for more than a decade, according to Moody's Economy.com, a research firm.
Unless the real estate downturn is much worse than economists are expecting, the declines will not come close to erasing the increases of the last decade. And for many families who do not plan to move, the year-to-year value of their house matters little. The drop is, of course, good news for home buyers.