When can we expect to break even, or at least recover some of the value that we lost due to the declining real-estate market?

BY Chris Amico  November 28, 2007 at 5:39 PM EST

Question/Comment: Everyone mentions all of those unfortunate people who are defaulting on their home loans due to the sluggish economy. Nobody mentions, however, the many hardworking Americans who saved and struggled to buy their dream homes and they are now in the difficult situation of paying for a home that no longer is worth what they paid for. It’s very frustrating to see your neighbors selling their identical homes for 5-10 percent less than what you paid for. Can these small interest rate cuts help us out? When can we reasonable expect to break even, or at least recover some of the value that we lost due to the declining real-estate market? Thank you.

Paul Solman: When you “break even” depends mainly on when you bought, no?  If it’s in the past few years, yes, you’ve got a problem, since it looks like you bought at the peak (at least in most housing markets).  Yes, a small interest rate cut CAN help. One of the insights of economics is that things happen “on the margin.” One implication is that little differences influence a lot of people. Think about how hard people look for “better-than-average” returns on their investments. Or bargains on their mortgages. Moreover, the half-a-percent (.5 percent) by which the Fed lowered short-term rates isn’t small. The rate dropped from 5.25 percent to 4.75 percent, right? What’s .5 as a percentage of 5.25? About a TENTH. That’s a big difference.