Falling home prices threaten economy

If rising home prices helped the economy bounce back from the dot-com stock market crash by allowing homeowners convert their growing equity into disposable cash, falling home prices will only exacerbate the current downturn by reining in consumer spending, a new study suggests.

The study, by economists at the USC Lusk Center for Real Estate and the UCLA Ziman Center for Real Estate, found that between 1989 and 2001, changes in housing wealth had about three times the impact on consumer spending as other sources of wealth, such as stock holdings.

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