Dip in Home Prices Could Stunt Consumer Spending

A look at home prices over the course of a year in Patchwork Nation’s community types found that many home owners saw the value of their large lifetime investment fall, a troubling sign for the economy as a whole.

The data, taken from July 2008 to July 2009, doesn’t include all the U.S. counties but does indicate that in the wealthier communities – the Boom Towns, Monied Burbs and the Industrial Metropolis counties – home prices have dropped considerably.

In places where home prices have fallen, people will be less willing to spend, said Dante Chinni, the project director for Patchwork Nation. Because consumer spending is a large driver of the U.S. economy — making up nearly 70 percent of economic activity — this could spell trouble for a quick recession recovery.

“A lot of people have been counting on their homes as their nest egg, their retirement plan and they’ve been using it to finance a lot of things,” Chinni said. “And unless those prices start coming up, it’s hard to imagine how those places are going to be willing or able to spend a lot to get us out of the recession.”

Listen to Chinni explain the implications

Even with gains elsewhere, without a boost in spending, the U.S. could be in this slump a bit longer.