Explaining Southern California's economy

Visual Aid: Is declining financial stress helping the housing market to recover?


Federal Reserve Bank of Kansas City

The Kansas City Financial Stress Index is trending back down to levels where investors have been historically comfortable taking on more risk.

The U.S. housing market seems to be improving, after completely collapsing in 2007-08. The Case-Shiller index, which tracks prices in 20 cities, is indicating that we've finally found a bottom for prices and could conceivably look forward to sustained price increases in the future. The foreclosure crisis is gradually working itself out — although it's still got a long way to go — and in the process benefitting the rental market, as people who've lost their homes take to renting as a transitional strategy. 

The stage is now set for consumers who've spent the past four or five years in a state of fear to begin buying houses again. Prices are low and interest rates are, too — as low as they've ever been. So why have people been so afraid? They haven't wanted to tie up their money. Cash is king in a crisis. If you're worried that you might lose your job, you don't want to be cash-poor and potentially confronting a stack of unpaid bills.