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It is hard to be enthusiastic about the economy's prospects when house prices are falling: Households spend less, small business owners can't use homes as collateral for loans and local governments are forced to cut jobs and programs as property-tax revenue disappears.

The key to house prices is the share of foreclosure or short sales in the total housing market. When that share rises, house prices will fall, because distressed properties sell for significantly less - currently around 25 percent below non-distressed houses.

Following an extended boom in housing, the demand for homes began to weaken in mid-2005. By the middle of 2006, sales of both new and existing homes had fallen about 15 percent below their peak levels. Homebuilders responded to the fall in demand by sharply curtailing construction.

Buying a home wouldn't make much sense if house prices were likely to decline further; no one wants to catch a falling knife.

If the demand for home commodities should be diminished, because of the fall of rent on the part of the landlords, it will be increased in a far greater degree by the increased opulence of the commercial classes.

The most critical factor subduing the demand for housing is that home ownership is no longer seen as the great, long-term buildup in equity value it once was.

As homeowners see the value of their homes decline, they become more likely to delay purchases of the big items - like automobiles, electronics and home appliances - that are ballasts of the American economy. When those purchases decline, large manufacturing firms, suddenly short on funds, could begin laying off employees.

As you know, low demand and high supply means a drop in value of anything, including the dollar.

No one should expect the value of their house to appreciate quickly - counting on your home to be a significant part of your retirement saving isn't a winning strategy - but it is reasonable to expect that prices generally will rise with at least the rate of inflation for some time to come.