Why Home Values May Take Decades To Recover

Rick Wallick moved into a new, three-bedroom $200,000 home in Maricopa, Ariz., in October 2005. Today, the home is worth $80,000.

The disabled software engineer stopped making mortgage payments this month. His $70,000 down payment is now worthless. His dream house will be foreclosed on next year.

Read the whole story here.

Comments

[loki]

I understand that a lot of the mortgage problem isnt necessarily with the everyday normal regional banks, its with the huge global banks and investment firms that started playing hot potato with the mortgage bonds that were bundled into so called "securities" and marketed as completely safe way to make fast money. The prices just kept going up and up , and every greedy group around the world just kept bidding them up to the next sucker. Now the game is over, and the suckers who got stuck holding the hot potato , is getting burned. The side effects are hurting the everyday banks, worse than it is hurting the main players in this con game like citi , boa , and large investment firms. Also, the banks who lend money are afraid to lend , saying they are afraid they may not get their money back. What I find funny is its not even their money. Its the customers money that they are playing with, but yet, they call it theirs. This is all caused by US style capitalism, which is dominated by Ivy Greed educated swines. Clear them all out, and things would change for the better pretty quickly I think. Then again, and as always, I really would like to be wrong.

[loki]

And just how long will it take for my property taxes to match the new lower value of my property???
I think if they can use rising house prices as the excuse to almost double my taxes the other year, they can use the falling prices as an excuse to lower them, a lot !

[MajorKong]

In retrospect, selling our houses to each other probably wasn't the best thing to base the economy on.

[loki]

But it was our patriotic duty , according to Bush. Remember after 911? We were all told to borrow more than we should and go shopping!! The housing market was touted as the economic engine of America for several years after 911. This was all self inflicted and orchestrated by the US gov and wall street. A false economy to cast a shadow over the failings of the real economy. And, the Bush changes to the bankruptcy laws encouraged lenders to lend to anyone at all. I can only assume they, Bush Co and friends, had hoped things would get better before the shat hit the rotating air moving gizmo, and they could pull the reigns in on this fraud they were pushing. It didnt, they didnt, and now here we are. Enjoy! Yeah Rethuglicans and Ivy Greed!! Youve done America proud, and made a heck of a profit doing it too!

[Lupin77]

The TARP was supposed to deal with the foreclosures and it never did. If this problem is not taken care of we won't be able to move ahead. People should be allowed to move back into their homes and some sort of accommodation made for monthly mortgage payments with these individuals. More and more people are living in tents and in their cars and should be allowed to return back to their homes. The people running TARP are a heartless bunch.

[45245]

tarp was bad idea......and tent are cheap......

[ErnestineBass]

Idjit.

[loki]

tarp was never meant to deal with the foreclosures. That is just what we were told. It was meant to hand out tax money to the wealthiest , give some to wealthy who lost some of their wealth, and supplement income for the bush administration. This is the power play to make the final divide of the rich and powerful, and the poor. Started when Reagan was president, and the final push is on to complete it before Obama gets a firm grasp on what is really happening. Unless he has been recruited too now. Non the less, its the economic trainwreck Reagan and his advisers said was needed to remove the social programs for the working class, remove the middle class, and make sure there is only those who have, and those who work for them and have nothing. ITs that Neo Con new world order vision coming to light. Enjoy the ride folks. its going to be deep, hard, and no lubricate.

[LiberalBuzz]

I almost feel guilty saying this. We bought our house TO LIVE IN, in 1973. we paid 25,000 for it and decided to go ahead and pay it off within 8 years. Which wasn't hard as most of it had been paid for upon purchase.

We didn't look at a house as a way to try and make money within a year or so. We looked at it as where we wanted to life. We moved into the Santa Ynez Valley and loved here and have been here ever since.

At one point the house was worth an ungodly amount of money (approaching 3/4 million) and is even now at a price I am somewhat amazed at....500K (due to very desirable area in CA)

BUT what I don't understand about the current problem is why the banks didn't immediately stop foreclosures and work with the people to keep the original interest rate.

As my understanding of this goes, when the market collapsed was when all these lenders suddenly came up with new interests rates that had been built into the contract. The people could afford the house at the original interest rate but not the new.

So why not keep money coming in even if the profits were not as high on paper as once believed?

[erinaceus]

A lot of smaller banks (with strong ties to their local communities where they issue mortgages) would have done exactly what you suggest. But the mortgages were bundled, securitized, and sold to Wall Street traders and institutional investors. The banks then had nothing further to do with them.

Once upon a time, a bank used to keep its mortgages on its books, and thus the bank had a stake in ensuring the success of someone who qualified for a mortgage. But the removal of regulatory controls meant that the lenders could approve a weak borrower for an obscene ARM and then sell the loan at a profit before the borrower had a chance to default.

[LiberalBuzz]

Ah yes regulatory controls. I would daresay, both sides are guilty of not doing their job to PROTECT the American people from crooks, but we ALL KNOW the Thug party pushed the hardest and in fact I believe it was head Thug Phil Gramm who was the number one champion AND arm twisting lobbyist to deregulate.

Every attempt to re-regulate the industry has been fought tooth and nail by Gramm and his supporters in Congress. ALL of those supporters are republican.

AND John McCain, let us not forget is a heavy champion of deregulation. He should ALWAYS be called on it.

[sonoffestus]

LiberalBuzz,,,,,,,,,,,,,,,,,,"house TO LIVE IN"................Thank you, that's what houses are for, TO LIVE IN. My wife and I have owned and lived in 2 different homes. We never lived in an investment. When we downsized 3 years ago and were looking for an "in town" apartment , I would blow my stack when the realtor would show us a place that was a good "investment". I wanted a home. After a long discussion, he helped us find our new HOME where we presently LIVE, and we love it.

[CanuckDemocrat]

Remember back in 2004-2005 when all those "Flip this House" type shows came on the air? I would watch in amazement at how someone could make hundreds of thousands on flipping a house, with the help of undereducated buyers who were armed with zero-down, interest-only mortgages. I remember thinking to myself: I know these shows are mainly centered on California, but how can house prices climb that much year after year? How is that sustainable?

The answer is it wasn't, and isn't. 40 and 50-year mortgages with no money down? I'm sorry but that's called renting, which is what smart (and lucky) people have been doing while the market crashes. In the end it all boils down to greed. People wanted to believe, egged on by dishonest brokers, that their house would rise in value every year and would make them rich.

[Zeje]

Those shows are still on

[leeman79]

Cart before the horse economics again. Normal appreciation is what, 3-5% annually. Thats pretty much been the standard. As pointed out already, people actually believed that 25% annual appreciation was the new norm. The housing market will be screwed up until the 3-5% catches up with the 25%.

[MajorKong]

You mean housing prices aren't going to gain 20% a year indefinitely? Who knew?

[texastrixie]

The individual cited in the article did everything right. He put down 35%, he had a 30 yr fixed mortgage. His only mistake was buying a house. Not because he should have known that market was fixing to burst, but he bought a house when he didn't intend on living in it for the rest of his life (or a large percentage of that life). He is underwater because he is renting the house in Arizona while he lives in another state. If he had bought the house to live in for 10-15 yrs, he could ride out the downturn in the market. But he now lives in another state. If he thought there was a real chance he could ever move (which means he would move - this is a decision you make) then he should not have bought a house under any circumstances. Houses are to live in - not to rent out, not to sell for a profit, they should be your home. A home with more permanence than 3 years.

[timberdoodle]

It's time for people to quit thinking and stating that America is the greatest country in the world and start thinking and stating what needs to be done to make America the greatest country in the world.

Greed just will not allow unfettered capitalism succeed in making a country great or likely even survive. For quite some time Americans have made statements like having government intervention would turn the U.S. into a European like country.

Fact is all those so called European countries citizens on the whole are far better off than those in the U.S. so it might just be a good idea to study some of their methods and implement some government policies they already have in place.

[Merewen]

Not goona happen. Would be too much like right. As it is American and European companies can go destroy India, Malaysia, Philippines, and whatever other country they can find that won't tax them at our levels and allow them to pay slave wages based on the cost of living.

[Bjarni]

Comparing the US to most countries in Europe is not really fair, the US spends way more money on military buildup and empire building. If the US didn't have those 2 factors there would be close to $1 Trillion left in the budget to spend on other things which European countries do.

[blood1]

There are lots of culprits in this housing meltdown, some have been highlighted and some have not.

I feel a sense of shame that so many Americans bought into this run-away credit nightmare. What were you thinking? Who taught you about responsibility?

When this is discussed, I do think that we should be able to separate those who were duped (by relators, etc) and those who were speculators and those who purchased their second "vacation" type homes.

What is never discussed is the majority (hopefully) of responsible adults that are going to pay for other's irresponsible indulgences/excesses.

[LeeCalif]

I was renting this house that was on the market. The realtor was showing it as I happened to be within hearing distance but out of sight.
The (prospective) buyer said he liked the house & so did his soon-to-be wife w/ new baby. The prob. was, he said, he was going thru a divorce & was late on some house payments.

No problem, said the realtor. I've had less to work with.

[delta7777]

"home values may take decades to recover"= nonsense

recover what ????..... the "value" of the home to corrupt financial entities for essentially stealing money from honest home buyers, who have no option other than to pay prices established by a criminally corrupt financial machine???

real home valuation basis is cost of site development and homebuilding , including a fair profit to developers who assume risks...and should track valuation based on comparable rental, bearing in mind the tax advantages of home ownership.
in an honest economy. homes should never recover the "values" based on criminally bilking buyers for even more than honest traffic can bear...

the backlash resulting from bursting the crooked financial bubble has currently depressed home prices below the real value of the homes--exacerbated by credit denial to qualified buyers by machinations by financial entities that have been literally "given" hundreds of billions (really trillions) of taxpayer dollars in mistaken expectation that this money would be be made available in the form of accessible credit to main street...

It will take a time for valuation backlash to work its way out of the system, after which homes should recover their real valuations rather quickly,,,,, in the meantime these same financial wizards are feasting on the corpses of foreclosed homeowners by buying valuable properties for pennies on the dollar--- main street, these financial entities have full access and control of the money/credit they have bilked from the main street taxpayer/his children/grandchildren through governmental lobbying/influence/misfeasance.

[Snwbnny9]

When the media does a housing story they always find some down on his (or her) luck person that bought at the wrong time. Most of the data shows that the housing bubble was caused by speculators. Who were not buying a house to live in but to rent to other people. Most of these people were naive and were then egged on by Realtors, Inspectors, Mortgage Brokers and Appraisers, who ALL said this is a good idea. Real Estate ALWAYS goes up.

In my short 33 years I have figured out one thing about finance- When everyone else is doing it... DON'T!

If you want to see the type of person that cause the housing bubble google Crisp and Cole real estate.

[Erdgeist]

Any homeowner who did not observe this formula needs to face the hard reality of foreclosure. Gross income x 3 = the affordable home.

The moral issue is that Americans should learn to leave within their means -- not according to their fantasies and desires.

I hasten to add some perspective. This is from Juliet Schor's book, _The Overworked American_ (1993).

"In the 1950s, when developer William Levitt created Levittowns for ordinary American families, his standard house was 750 square feet. In 1963, the new houses were about twice as large; and by 1989, the average finished area had grown to almost three times the Levittown standard--2,000 feet."

So do we really need the unaffordable 'mega home'? As a kid during the 50s, I can remember living in a house of less that 700 square feet. It was spacious. And I was happy.

[erinaceus]

Why do so many people say that victims of losses in this housing market "should have seen it coming?" Sure, a few speculators got their just desserts, but legions of homeowners (in Ohio, entire municipalities) have been wiped out by foreclosures. The big problem here is the incestuous interconnections between institutional players enabled by the unregulated securitization of mortgages.

Under "should have seen it coming" guidelines, all the California grandmothers who suffered during the electricity shortage because they couldn't afford their medications are to blame for their own fate. The illegal Enron market manipulations that drove their energy bills higher by orders of magnitude apparently had nothing to do with it.

People who make this argument should never complain when they suffer any loss, or get taken advantage of.

Got burned by a contractor who took your money and didn't make promised repairs? Blame only yourself. You know the market. You "should have seen it coming."

Had a kid who died of E. Coli from eating tainted beef? Don't you dare blame anybody except yourself. Only a crazy negligent parent would let a child eat a hamburger at a fast food joint.

This all-too-common meme is not just cruel, it's also counterproductive. Crimes cannot be solved when the perpetrators are absolved of responsibility while the victims are told to hang their heads in shame. In fact, this approach guarantees an explosion in crime.

[McBushMcSame]

Thank you.

Should have seen it coming is not only smug, it's right up there with "That could never happen to me because they are stupid," which is false. This could happen to anyone, including those who proudly claim they are "living within their means." That means line keeps moving and there could come a time when the means make basic survival impossible. Will people be so smug then, you know, when it happens to them?

[Totto]

The quest for the "bottom line" is reducing this country to third-world status. Personal integrity and quality used to matter here.

[Merewen]

And the mortgage companies STILL are not working with homeowners to fix this and keep people in the homes. They are still morally defunct and ignorant as ever. I have been trying to help a friend get their mortgage modified for 2 years now. After the mortgage companies DEMAND large amounts of money be sent in, they still don't modified. You can't speak to the same person when you call in, so you're getting different information. Now that the person has really bankrupted themselves by taking out loans against 401k's (demanded large amounts $), jacked their credit up, and basically stressed themselves into depression. The mortgage company had the nerve to ask "what are you doing with your money"? Wonderful...

[MsRy]

The "should have seen it coming" perspective is not based in schadenfruend, but instead in a sober appraisal of the "actual" worth of real property. It is not at all analogous to food safety violations, and is not at all meant to be cruel. It is, however, a fact.

Gross over-speculation in the real estate market WAS clear over the last 10 years. The neighborhood where i grew up in SoCal was valued at 500k! These are post-WWII tract homes obviously NOT worth 500k, but the tech bubble, the employment bubble based on frivolous high-end retail, and the service sector inflated everyone's greed to the point that they believed that an 85k tract home had intrinsic value of 500k.

Additionally, there is a basic financial rule of thumb that housing should NEVER consume more than 30% of a person's income. That rule was ignored by everyone over the last 10 years. Families with an annual income of 50k CAN NOT afford a 150-200k house, and still meet all other obligations (food, insurance, utilities, personal debt, etc etc)!!! That is a simple fact of math. Less income than out go = big problem that can be seen from outer space. Couple that with the average personal debt load of families, well...it's not difficult to figure out.

[Merewen]

I understand what you are saying, but if those prices where everywhere... what then? I mean for a family of 4, a 3 bedroom rental will run you the same amount as a mortgage.

[erinaceus]

MsRy,

What you are saying makes a lot of sense, but ultimately people do have to live somewhere. The housing bubble was inflating nearly everywhere (not just SoCal) simultaneously, because it was driven by national institutions. The cost of housing was also driving up the cost of rents as well, as people who couldn't afford the one had no choice but to pay the other.

The rule you quote is well-known. But what were the 23 million inhabitants of SoCal supposed to do? Move to Idaho? (Some probably did, causing a bubble in Idaho real estate.) Get the advice of experts (like mortgage brokers, realtors, and lenders), all of whom probably neglected to mention that rule? Live in a tent on the highway median?

Your explanation of why people say "they should have seen it coming" is a relief in one way. You say it's not schadenfraude, and I would like to believe you. But if the goal is to prevent this kind of thing from ever happening again, then the larger context has to be examined. People who are trapped in the company store will always spend more than they should. That market doesn't give them a choice. Telling those people that they need to "live within their means" would be like telling a sharecropper that he needs to find a way to pay for his land.