Housing Prices May Still Go Lower

Washington Independent:

Financial markets have finally internalized the brutal fact that house prices still have a long way to fall. The full-year price drop in 2007 was 8.5 percent. From January through April of this year, the most recent data available, prices fell by another 8.2 percent -- a remarkable rate of acceleration.

Can they fall further? Unfortunately, yes. By conventional ratios of prices to rental values and prices to incomes, they may still be 20 percent too high.

Falling asset values have a way of turning free-market avatars into raving Socialists. For example, the housing rescue bill currently working its way through the Congress has Bank of America's fingerprints all over it. But while the rescue bill gets all the attention, much bigger bucks are already in play.

Read the whole story: Washington Independent

Comments

[memphispaul]

01:57 AM on 07/08/2008

It will be much more difficult for housing to find a bottom and rebound for a couple of very simple reasons.
First of all there are fewer and fewer qualified buyers each day. As more and more folks fall on hard times their credit scores suffer and they will be unable to qualify for a mortgage.
Secondly, there is much less money available to fund mortgages. As funding dries up, with little in the way of replacement sources or methods the squeeze that lenders are facing will continue to be passed along to consumers.
Even with the recent drop of 325 bp in the prime lending rate the rates for mortgages as actually increased. As the fed faces increased inflation and declining dollar pressures to increase rates, coupled with a 35-55% reduction in the pool of qualified borrowers from June 2006 - January 2009 it will be some time to come before prices stabilize and a recovery in housing can be realized.

[cylindar]

11:52 PM on 07/07/2008

Thats not news. Prices will fall to 1999 levels and then rebound slowly before all is well again. Don't believe it? Just watch and see! This housing bubble was laughable from the beginning. It was just like the Great internet bubble. The people who are really going to suffer from this are the greedy ones anyways so it doesn't make too much difference.

[memphispaul]

02:00 AM on 07/08/2008

Tell this nonsense to the tens of thousands of military families that are being disproportionately affected by the disruption in housing. Most of these families were barely able to gather a 10% down payment to begin with. Now that they are upside down I challenge you to go and tell them that they are just speculators getting their just rewards. You friggin' POS!

[WorkingClass]

12:09 PM on 07/08/2008

If you are a billionaire you will survive the coming hyper inflationary depression. Otherwise, you are no better than the rest of us. Its your economy too. When it collapses your wisdom and/or your virtue will not save you. The Lord sends his rain upon the just and the unjust. HA HA HA!

[Thermodynamics]

11:08 PM on 07/07/2008

Fixing the problem at the level of the homeowner helps maintain a stable economy because John Public gets to keep owning his house..

Otherwise, all those foreclosed homes go on the market at very low prices and then the whole market is depressed. There is no demand for new construction. Hardhats are unemployed. People like me who just want to sell and move are facing a market flooded with cheap houses. This is the kind of snowball situation that does cause a long recession.

Also, fixing the problem at the top costs more because the debt obligations are leveraged investments.

[Thermodynamics]

09:50 PM on 07/07/2008

f you follow the link "read whole story here" you will get a more complete picture.

Just as in the S&L crisis, our government is wasting money by fixing the problem at the top instead of the bottom.

We could save the homeowners without saving the banks. Many homeowners were prudent but still suffer. I paid cash but now need to relocate and will lose maybe 40% if I sell. Military families must move when transferred. If they cannot sell they are more or less forced into foreclosure. The rental market is beyond saturated.

"We did much the same thing in the early 1980s, when the problems in the savings and loan industry first surfaced. A decade later, it all went onto the taxpayer books at 10 times the cost."

[nomadicexpat]

12:12 AM on 07/08/2008

but won't you get 40% more house in your new area when you move?

if you are taking a 40% hit, it should even out when u buy a new house in the new area .. correct?

[AntiStrauss]

07:37 PM on 07/07/2008

Housing prices can fall until they reach replacement cost of the structure in question plus the value of the land, adjusting for condition and location. In Florida, houses were being built for $80 per square foot including land and sold to $300+ per square foot. This kind of discrepancy can only be sustained when demand outstrips supply dramatically. Now that it is no longer the case, values have fallen back to $80 per square foot plus a location premium. And, everyone is squealing like the pigs they were.

I knew it was time to sell when I walked to the end of my driveway to get my morning newspaper and two retirees, out for their morning walk, asked if I wanted to go in with them on three spec houses in another development. I had never met either of these men before. It reminded me of the day I came into my University office and found the clerical staff discussing the performance of their retirement plan stock portfolios. I went back to my office and adjusted my retirement portfolio to 25% stock and 75% annuities before noon. I was within two weeks of the market top and I am still money ahead today. Unfortunately I couldn't do the same with my house this time.