>It's because 2/3 of Americans are homeowners, so for a majority of Americans, falling house prices are bad.

Why? Those homeowners shouldn't care what the price of their house is. While they're living in it, it doesn't matter, and when they sell, presumably their next house will be cheaper too.

The only time home prices should matter is in comparison to the overall market. If your house got cheaper while other homes got more expensive, that's a problem for you. Otherwise, the price of your home is mostly irrelevant.

Houses are an asset in people's minds. This means that you can sell your house if you need to get extra money and you're in a bind, or to downsize from your current house to a cheaper-to-maintain one.

Let's say you bought a house for $400k with 100k down and have so far paid 50k towards the remaining 300k (plus interest, since it's a loan). The housing market has gone down, and your house is now worth $200k. (These sort of drops happen). Okay, so your house is worth $200k. You need to get out of there, but you've only paid 150k towards your 400k loan. You sold the house for 200k, so now you still owe 50k to the bank for a house you just sold for less. This does not help you out of your current situation, which was to sell an asset to pay for things, or to survive easier.

Edit: Note. This is a VERY simple and slightly inaccurate review of how paying for a house works. The intent of it was to explain why lowering prices are bad for people that already own homes.

Let's say I take out an $80,000 mortgage to buy a $100,000 house--which then appreciates to $120,000.

If I sell the house, I walk away with $40,000 in cash, which I can keep tax-free (a special privilege accorded the capital gains on your primary residence).

Now let's say I want to buy a home the same size--it's $120,000 too. But I only need a down payment of 20% to secure the mortgage--that's $24,000. So now I'm back in a house the same size as I had, but I have $16,000 tax-free in my pocket.

Before, you had $80k in debt, now you have $96k in debt. You basically just took out a home equity loan.

Yup; I also could have just refinanced the first house at the higher appraisal. All three are good reasons for a homeowner to be happy their home value is going up.

If you're stuck in your home like in sukuriant's example, you can't move if you find a job somewhere else. You're stuck in the town you are in and you'll need to find something locally.

This is part of the problem with the American labor market at the moment.

Maybe. BUT 2 things:

* Most bought and expect it to appreciate. Very important. That is the most important retirement asset they have. If their house loses half the money it could mean eating ramen for 20 years after retirement or eating steak.

* Property taxes. Some would actually not like it to appreciate too fast if they are not selling yet because they have to shell our many thousands of dollars a year. Ideally they would like the price to stay low then right before they sell, to spike through the roof.

Property values for tax purposes are reassessed less than once per decade in many jurisdictions in the US. This is true on the downside also. In some cases, houses sell for multiples of their tax assessment, yet even a transaction will not trigger a reassessment.

Excuse me, but I'm a twenty-something who pays Social Security and National Insurance taxes (separately, due to dual citizenship) because I actually want these programs to be there for me and my whole generation when I/we get old. You think a generation who graduated school into huge debts and busted wages are going to have fat 401k accounts to retire on?

I think it's more likely than us having Social Security to retire on...