Sure Sign Home Prices Continue to Decline, Home Equity Loan Rates (2010, 3%)

[Humboldt1]

All one has to do is look at home equity loan rates. Banks are beginning to realize that home equity is continuing to go down. Average $75K Home Equity Loans (not HELOCs) went up from 7.5% to 8.0% in the past few weeks. HELOCs are down, but only because they are tied to Prime, which is now 4%. Even still, HELOCs are averaging 4.5%, a full 50bps above Prime. In the past with strong housing market and rising home equity, it was not uncommon to get Prime-100bps HELOC.

Anyone with such a facility should seriously think of tapping into it before the banks pull it. Imagine, a loan at 3%. I do not have a HELOC, but if I did I would max it out and invest in short-term CD. My bank has a promotion offering 4% for retail customers for 6-month CD. For $250,000 HELOC, that would be extra $1,250 in my pocket for 6 months (I am assuming this promotional pricing will not last and rate will go below 3% once term is up). You will start seeing more and more banks pulling HELOCs and no longer offering pricing below Prime.

If banks do not have faith in home equities and thus home values overall, and banks are generally late to the game, home values have a ways to go down.

Also, on the commercial side (my business), we are facing serious capital constraints for loans exceeding $5MM. Very few new large loans are being done unless they have huge cash deposits and services associated with them. Many, many businesses will not be able to get credit as banks continue to horde cash, even with all the govt infusions of capital. Things do not look for people seeking loans or the economy in general.

The only way we are coming out of this thing is when home values bottom and then start to go up. One of my lenders earlier today said, "the lending spigot is still on, but it is an eyedropper". I think we are going to see at least another year of home declines. With the NAHB calling for bottom price-wise in mid 2009, it may actually be 2010 before we start to see any kind of bottom, price-wise.

[Jamesww]

Again I think it depends on the market. Long swooping handed statements about the entire nations market are doomed to be wrong. In fact I am calling the bottom for the Boston market as we speak. That falls far shy of 2010. In addition the way things have been going in Cleveland it looks like they may have already hit bottom. Next as long as oil stays above 45 dollars a barrel Houston will stay flat. If oil stays above 50 dollars a barrel Houston will see modest gains.

Now most cities in California, Las Vegas, and Southern Florida I agree with your take whole heartedly. Now I think Chicago's drop will take until some time in 2010.

[texdav]

The only thing wrong with that is that houston is in fact not flat.That is although most think houston is only based on oil ;it isn't.In fact just look at the profit of oil companies with oil falling. I really look for those araes that had a huge bubble in housing vakue to fall for one rason;that is higher unemployment in many sectors of the economy and the tougher lending standards.We are getting huge influxes of peole moving for work and the worse hasn't even hit.Exxon just announced there highest quarter evr with dropping prices which shpould make people finally realise that TExas is not a huge oil producer any more.We are stil a big and will get bigger when refienry preojects are complete;producer of product. The refineries are much different than after the 70's and are really streamed lined as the auto companies will be if they survive.In the mean time ;values for homes here are good;people need housing with expanding population and people can afford the homes.

[KCfromNC]

Originally Posted by Jamesww

Again I think it depends on the market. Long swooping handed statements about the entire nations market are doomed to be wrong. In fact I am calling the bottom for the Boston market as we speak.

Does that really line up with the data?



Prices more than doubled during the 8 year run up to the peak of the Boston bubble - I don't imagine a 10-15% drop from that peak puts them back to normal. Heck, there was more of a drop percentage-wise during the last RE bubble popping (see the far left side of the chart), and that run up wasn't nearly as pronounced.

[Humboldt1]

Case Shiller Futures currently call for bottom in Chicago real estate price-wise in May 2010. I believe they call for bottom in Boston in 2012. You can pull the data for all top 10 metro areas.