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The housing market bubble popped because the values were inflated due to so many buying houses they couldn't afford anyway, if the value of houses were to drop 90% as in your examples, the entire economy would collapse.
You can buy the place, strip away all the metals and lumber, and sell them for a profit if there's a place listed that ridiculously cheap.
Than go do it. I put a bid in for a house last year at 18K, and an investment firm came in and snapped it up for 24K. It was in foreclosure, like the other tens of thousands. If there are no buyers, what direction would you expect the houses to go? And the houses in Detroit selling for 4K have already been stripped more than likely. The back taxes due would eat you alive if your intent was to strip it. Houses get that cheap for a reason... Why do you think the city of Detroit is looking to level many abandon parts of the city? Because there have been no buyers for decades.
Will it be chaotic? Maybe a bit, but not the end of the world. We're talking about housing prices falling below 10K in most areas within the next 3-10 years. How is that possible?
Take the average home price, about $140K nationwide (the median is currently around $175K but that's not as relevant as the average). Assume a family buys the house with an income of $50K and that they put a down payment of $28K for a 360 month mortgage. With an interest rate of 7%, they will pay $745.14 for 360 months totalling $268,250.40 in total principal and interest payments. $745.14 is around 18% of their gross income and let us assume that they won't or can't go over that percentage.
Now, if the average mortgage interest rate were to rise to 9%, then they can only buy a house worth around $115,800. At 11% this falls to $97,800. At 13%, $84,200. At 15%, this goes to $73,700 and so forth. It doesn't take much for housing to take a dump.
What happens if the family income falls by 20%? Even with the original numbers, they can only afford a house worth about $112,700. If the income gets cut in half, then you're looking at $70,500. If the family's sole source of income falls by 75% (not unrealistic), then they can afford at most $35,200 for a house.
If the family's household income falls by 75% and the average mortgage interest rate goes to 15%, then they can afford $18,500 of house. Now we're in used car territory...talk about a bargain.
What happens if you only go 180 months for a mortgage? Then the family can only afford $16,700 for a house. Not much difference from the 360 month loan but a better deal in the long run LOL.
Housing bubble? Housing was way overpriced for the last 40 years or so, longer than I've been alive. For all I know, the average home price could fall below $1,000, cheaper than the electronic PC trinkets people get at Best Buy. And a home is a home, irregardless of whether it costs $1 trillion or $0.01, so remember that. The math is real simple.
Your math & that mortgage rate (lower than 7%, much much lower... read the news lately???) is wrong!!!
One more thing that you have to take into consideration why it will never be the price of a used car unless in Michigan or some really boarded up hood...
#1) Prices of land... They are not making land anymore... so in a valuable hood... it goes up, NOT down.
#2) Prices of materials... even should the dollar weaken to a point... the materials to build homes are not going down = like used cars... the "parts" may be worth more than the car itself = existing homes may hold more value even if *you* don't say so...
#3) Quality of workmanship hence value etc... New homes (built when) VS Old homes (built when) & if any of these homes are lemons (needs maintenance), in what neighbourhood = location... etc.
2012... bouncing the bottom... say you paid for the land for X amount the same value as your neighboorhood land goes for. Then another $10K extra paid for that whole house (with granite, updated appliance = $10K there, new roof another $10-20K, new driveway another $10K etc.)... in this case, your home has gifted you with $20-30K +++.... and NOT costing you that $1K worth of a beat up used car.
"#1) Prices of land... They are not making land anymore... so in a valuable hood... it goes up, NOT down.
#2) Prices of materials... even should the dollar weaken to a point... the materials to build homes are not going down = like used cars... the "parts" may be worth more than the car itself = existing homes may hold more value even if *you* don't say so...
#3) Quality of workmanship hence value etc... New homes (built when) VS Old homes (built when) & if any of these homes are lemons (needs maintenance), in what neighbourhood = location... etc."
1. Well, outside of volcanoes spewing lava that cools into land and giant piles of trash being remade into shoreline, I do agree with you here. However, only 2-3% of the land within the USA is actually occupied by any sort of development outside of agriculture and national parks. We have plenty of area to build. Prime areas can hold their value better but even so, only a small amount of real property in the USA is actually 'prime'.
2. How much it costs to build a house isn't always related to what it eventually sells for. Should a used car cost more than a new car? Perhaps if you're selling nostalgia it can. A showroom quality muscle car can command some serious money. However, most older cars are beaters and aren't worth four digit figures. Most older homes are old beaters as well and don't command five digit figures (unless people like paying 100K/200K/300K/etc for a chipboard box built in 1910 or so)
3. As far as quality goes, most modern homes are built a lot better than most homes of the past. Granted, a brick home built centuries ago can still hold its value better but that sort of home is more the exception rather than the rule. Most housing structures built decades ago were built with crappy electrical, clay plumbing, weaker structural materials, and so forth. You can argue that the McMansions of today are built like crap and quite a few are, and that's because the vast majority of houses built during the housing boom of the past decade or two were built mostly for speculative purposes. As with all speculative goose chases, this will end with a bang; a McMansion with fake front brick trimming and a Made-In-PRC plastic skeleton that sold for $400K-$1,000K during the boom is really only worth $5K - 10K because it's going to fall down before a traditional mortgage would be paid off. Can homebuilders build better housing structures? Absolutely, but they'd rather go the cheap route.
Think of this scenario: What you say happens and the average home price goes down to $15,000 due to a lack of demand for homes. Because of that, rents would probably increase quite a bit because people need to live somewhere. So here is what you could probably do: Buy a modest home for $15,000 and then rent it out for $2500 a month. What a deal! And then what would happen to home prices after that? They skyrocket.
Think of this scenario: What you say happens and the average home price goes down to $15,000 due to a lack of demand for homes. Because of that, rents would probably increase quite a bit because people need to live somewhere. So here is what you could probably do: Buy a modest home for $15,000 and then rent it out for $2500 a month. What a deal! And then what would happen to home prices after that? They skyrocket.
That is a possible scenario, but the rent may not be as high as $2500. Even at $500 or so, it's still not too bad an investment. Your typical suburban home (1500 - 2500sqft) could easily fall into that price range. But I don't see how they would necessarily skyrocket after that.
Seems completely reasonable. Household income will only need to fall by 80% and interest rates be at 20%. These are, as everyone knows, completely reasonable assumptions that the majority of real economics (you can find them on The Economic Collapse, btw) agree with.
The rental market is already putting pressure on the housing market. Except for a few regions in the country (NY, Seattle, San Francisco to name a few), it's cheaper to buy than rent. Rent prices have gone up because right now a lot of people can't buy because the banks won't lend to them. Unless you have excellent credit and put down a big chunk of change for a down payment, banks are still pretty leery to lend. Most renters don't qualify as buyers in today's lending market, although in the last year the banks have started to lend a bit more than they did before.
You can buy decent starter homes here in Michigan for about 55,000-60,000 dollars. It is on the low end, but definitely possible if you look. They would be something more for a person in their early 20s though. Not quite the house for a 30 year old professional.
Yessireedeedoo I get all my economic forecasts from sites that have photos of sinking ships....
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