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Experts finally admit severity of home mortgage crisis in America, prices falling faster than post war housing bust, seeking opinions on declining home prices
You all are forgetting on big factor in all this. New home building. Materials and all associated costs with building a new home have went up and are going up drastically due to energy costs. As home prices continue to fall, builders will stop building (as they are now) supply will shrivel and prices will again begin to rise.
You all only compare the drops and rise based on income, when supply is the key factor. Right now there is a large surplus of homes for sale due to forclosures and investors bailing. When these folks get these houses off the market over the next 24-36 months, you will see the true bottom and then a gradual rise again.
Not going to happen.
First thing you have to understand is NOTHING can rise past a price point that people are unable to pay. Unless input prices (the cost to create the thing or extract a thing) high. Example, I saw a show that allowed this guy to build homes in L.A. that is half the cost of building a traditional home. So he can charge less. Contrast that with petrol extraction. Dwindling petrol/peak oil meaning takes more to get it out the ground. Coupled with less supply, higher demand. High oil prices, but then people stop using as much.
So now lets get to the meat of the topic. Homes prices are traditionally 2.5 to 3.5 annual income. What that means is, a family making 60,000 a year can afford 150,000 to 210,000. So, how did home prices rise so high if this formula is the traditional amount you ask? Well, one of two things had to occur. Either, wages had to increase, which we know they didn't or some how people had to have more money to purchase a higher priced home.
So, in comes exotic loans, low interest rates and lax lending practices. So, people no longer had to verify how much they make a year (now the issue of income is removed). Introductory mortgage rates are made very low with the help of low interest rates. Boom, you have yourself a housing bubble based on faux wealth.
When interest rates go up, payments reset the home "owners" end up defaulting on their homes. Banks no longer give out these ridiculous loans, means less people can afford to buy homes now. That means inventory rises and blah blah blah.
So, are home prices going to continue to fall? Well that depends on the area. The sooner home prices go back to the traditional 2.5 to 3.5 price range, the sooner the bottom will be reached. Every area is different in this regard. Well the prices rise again as they had in the past few years? Unless every single American hits the lottery or wages increase at a rate never before seen on the planet earth, nope. As Humanoid has pointed out already. Prices will increase with traditional wage increases which is usually 3% to 4% a year. Other than that, anyone's opinion that we will see prices ramp up like that again anytime soon is really unaware of how any of this works. We probably will not see another bubble like that in housing in our life time. I suspect major regulations will be put in place after this to stop any of this from ever happening again.
Location: Sitting on a bar stool. Guinness in hand.
4,428 posts, read 6,509,244 times
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Quote:
Originally Posted by travelmate38
You all are forgetting on big factor in all this. New home building. Materials and all associated costs with building a new home have went up and are going up drastically due to energy costs. As home prices continue to fall, builders will stop building (as they are now) supply will shrivel and prices will again begin to rise.
You all only compare the drops and rise based on income, when supply is the key factor. Right now there is a large surplus of homes for sale due to forclosures and investors bailing. When these folks get these houses off the market over the next 24-36 months, you will see the true bottom and then a gradual rise again.
There not just a large supply. There's not just an over supply. There is a HUGE over supply of homes out there. And yeah foreclosures have a bit to do with it. But it also has a lot to do with builders going hog wild during the boom years throwing up subdivisions like they were going out of style. I remember being in the D.C./maryland/virginia metro area back 3 years ago. All I saw was new McCrapboxes being put up everywhere. There was no possible way (in my mind anyways) that the demand for these homes kept pace with the rate at which these homes were built.
So even though builder have stopped building for now it's going to take a long time before you see the price bleeding fully stop in a lot of areas.
There not just a large supply. There's not just an over supply. There is a HUGE over supply of homes out there. And yeah foreclosures have a bit to do with it. But it also has a lot to do with builders going hog wild during the boom years throwing up subdivisions like they were going out of style. I remember being in the D.C./maryland/virginia metro area back 3 years ago. All I saw was new McCrapboxes being put up everywhere. There was no possible way (in my mind anyways) that the demand for these homes kept pace with the rate at which these homes were built.
So even though builder have stopped building for now it's going to take a long time before you see the price bleeding fully stop in a lot of areas.
that or they are going to have to bulldoze some of this stuff. They are doing that in Upstate NY and in Florida they were talking about bulldozing some homes.
Prices in 2000 were already inflated, when all is said and done the prices should go back down to the prices seen in the late 90's (adjusted for inflation). Although, I wouldn't be surprised if they went down to the actual prices in the late 90's as wages haven't increased that much since then.
I can't see that happening in places like MA. We bought a 4 bed 2.5 ba house for $299K. It's market value in 2007 (and this is down over the high it attained before the market softened) was $611K. I think realistically in mid-2008, it would sell for less than that: mid $500's. There's no way this house is going back down to $300K. If it does, we'll be first in line to buy it back!
Location: Sitting on a bar stool. Guinness in hand.
4,428 posts, read 6,509,244 times
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Quote:
Originally Posted by findingmesomeday
I can't see that happening in places like MA. We bought a 4 bed 2.5 ba house for $299K. It's market value in 2007 (and this is down over the high it attained before the market softened) was $611K. I think realistically in mid-2008, it would sell for less than that: mid $500's. There's no way this house is going back down to $300K. If it does, we'll be first in line to buy it back!
Where are you in MA? I been watching the South Shore, Bristol county and the Mid-Cape and there taking somewhat of a beating. Branstable, Plymouth, Brockton, and New Bedford are some of the town that are falling like a stones in terms of pricing. They will reach 2000 prices soon and probably the late 1990's prices two or three years out.
that or they are going to have to bulldoze some of this stuff. They are doing that in Upstate NY and in Florida they were talking about bulldozing some homes.
I can see this happening...to support the subdivisions that survive, commercial, public and retail areas will be needed, so I do think that builders and city planners will tear down some over built areas to put in revenue generating commercial developments and public service operations for suburbs. It will be interesting to see if this comes to fruition.
Do you have a link for an article on this...just curious?
I can see this happening...to support the subdivisions that survive, commercial, public and retail areas will be needed, so I do think that builders and city planners will tear down some over built areas to put in revenue generating commercial developments and public service operations for suburbs. It will be interesting to see if this comes to fruition.
Do you have a link for an article on this...just curious?
I saw a show on sundance channel about the bulldozing in buffalo.
I can see this happening...to support the subdivisions that survive, commercial, public and retail areas will be needed, so I do think that builders and city planners will tear down some over built areas to put in revenue generating commercial developments and public service operations for suburbs. It will be interesting to see if this comes to fruition.
I am thinking more like large gardens so those folks remaining can eat.
There's no way this house is going back down to $300K. If it does, we'll be first in line to buy it back!
Why is there no way that the house will go back down to $300k?
A house that sold for $300 in 2000 will most likely be worth around $350 in a year or two. $350 is just the inflation adjust price from 2000. Of course it could go lower, but it depends how bad the general economy gets. Interest rates are raising sharply, that is going to be more pressure on prices too. And why would you buy back your house that you bought for the same price? I don't get it.
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Strong possibility
