it in 1990. Housing starts led the economic recovery that began in 1991. Housing prices fell again in the beginning of 1992, and increased approximately only one percent from 1992 to 1993 (Koretz, June 7, 1993, p. 22).
Owner-occupied housing forms the main asset of the middle class, so home prices have a strong effect on consumers' willingness to spend, one of the factors that drives economic growth and inflation. In the 1970s and the early and middle 1980s, rapidly increasing home prices enabled many consumers to take on additional debt in the form of home equity loans and use the money for other purchases. Today, home prices are unable to keep up with inflation, with the result that relative home prices are actually decreasing. As a result, consumers are spending less.
Weak home prices also put downward pressures on the consumer price index, one of the most often used measures of inflation. Home prices are reflected in the consumer price index by an "owner equivalent rent" component which accounts for 20 percent of the index.
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