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For immediate release: August 16, 2011

U.S. Housing Prices May Hit Bottom Within the Next Year, Says Dallas Fed’s Economic Letter

DALLAS—Despite a difficult short-run outlook for the U.S. housing market, new home construction and house prices may stabilize and start recovering slowly by early next year, according to the latest issue of the Federal Reserve Bank of Dallas’ Economic Letter.

In “When Will the U.S. Housing Market Stabilize?” John V. Duca, David Luttrell and Anthony Murphy say results of their econometric simulation indicate that U.S. house prices may hit bottom late this year or in early 2012 and then recover slowly.

The simulation, which was carried out in early 2010, has since largely tracked the actual movement in the Freddie Mac purchase-only home price index.

Recent house price declines have significantly slowed consumer spending, the authors note.

“These negative effects will likely ebb and then turn positive after house prices start recovering,” they write.

Duca is a vice president and senior policy advisor, Luttrell is a senior research analyst and coordinator of economic and financial analysis, and Murphy is a senior research economist and policy advisor in the Research Department at the Federal Reserve Bank of Dallas.


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