After more than a decade of rising prices in the U.S. housing sector, home prices began declining in Q2 2006 and continued to fall into 2009, though at a slower pace. While over-building during the housing boom led to a glut of housing inventories, by mid-2009 the supply of new housing had undergone a significant downward correction and housing starts appeared to have stabilized. However, inventories remain elevated above their long term average and an increasing number of foreclosures continue to enter the market. On the demand side, government incentives in the form of lower mortgage rates and a $8,000 first time homebuyer tax credit have lent support to demand, but the weak labor market and sluggish income growth will continue to weigh down the indebted U.S. consumer. Without a narrowing of the demand-supply mismatch, there remains a risk of a prolonged decline in home prices.
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