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News out today shows mortgage applications fell 9.6% in the last week (third lowest level since 6/09 after last week's 11% decline), FHA and VA applications dropped 19% (FHA insurance is now higher).
All at a time when traditionally, applications are supposed to be increasing for the spring buying season.
That said, a dynamic to consider is that when mortgage rates hit 7-8%, buyers on the fence may panic and start to buy before rates go higher. If rates do go much higher than 8%, owners will be reluctant to sell because they won't be able to get as much house at a higher interest rate. Sooooo....inventory levels MAY drop, causing prices to stabilize or go up.
Then again, many "owners" will soon be defaulters and then renters, so perhaps the inventory will be forced by banks.
And shortly after that? All aging empty nest baby boomers considering trading down from your McMansions raise your hands. Hands go up across America.
Now all Gen X and Gen Y buyers who want a McMansion raise your hands. Anyone? Anyone? Bueller?
Do people really think home prices will drop another 20 percent? I think another 10 percent down is more realistic.
In certain hard-hit areas and those that are late to the party such as NY, maybe but not as much for other areas.
I am thinking we have another 10-15 percent to go down here in the Chicago area. In the ghetto areas, declines will be more severe, especially in formerly "up and coming" areas.
I bought a 3 flat in one of those neighborhoods in 2006 for 360K (mistake) and am now looking at a slightly better building on the same block (no garage though) that sold for 400K in 2005 that is listed for 185K. I am hoping to get it for around 150K. This will help me recoup some of my losses from 2006 purchase (have 82K in realized losses on my taxes I am looking to recoup and can use this to offset any income from new property).
Chicago was the only market in the country to show a continued, pronounced drop in prices in last month's Case Shiller report.
"National" projections this year are calling for a further 7% drop in prices. Such projections are kind of silly, except that the Chicago market seems to track them fairly well.
The price drops won't stop on a dime. They can bleed to death for years. 7% this year. 4% next year. 2% the next year. 1% for who knows how long. Check out the Japanese housing bubble for an eye opening example of what just a small drop each year can do over time to prices.
If you're truly concerned about getting burned, you might want to take another look at projected Option ARM recasts and resets, foreclosure rate trends in your zip code and the overall state of Chicago and Illinois in general (can you say higher taxes?). Commercial real estate is another one to consider if your area built up commercial space in the last ten years and "for lease" signs are now becoming prevalent. Nothing says urban blight like empty storefronts.
And yes, the govt money propping up the "Weekend at Bernie's" housing market is about to run out. Stop the music. At this point we don't know if Bernie is truly dead, in a coma or about to wake up paralyzed, but the BEST case scenario in bubble markets (and Chicago was one) is that prices stay flat for a while.
$1.25+ trillion to keep mortgage rates down (and indirectly, the stock market up), tax credits galore, foreclosure moratoriums and stalls galore, FHA loans for anyone who could fog a mirror. Gone, gone, gone.
Commence half-a**ed principal forgiveness and the short sale avalanche.
How do you think Bernie's gonna look by August?
As always, I could certainly be wrong. But considering all of the above, a dose of caution might go a long way.
Good luck!
PS. I think you asked a while back when I think our area will bottom. Each zip code is different. Over all (and barring bizarre inflation) I don't think we can bottom till foreclosures wash all the way through, employment is up for several months running and inventory levels get back to an 6-8 month supply. 2013 feels optimistic to me for a turning point. 2014 or 2015 feels like a better bet.
News out today shows mortgage applications fell 9.6% in the last week (third lowest level since 6/09 after last week's 11% decline), FHA and VA applications dropped 19% (FHA insurance is now higher).
All at a time when traditionally, applications are supposed to be increasing for the spring buying season.
But how of that was buyers who pushed up to get the tax credit?
Chicago was the only market in the country to show a continued, pronounced drop in prices in last month's Case Shiller report.
"National" projections this year are calling for a further 7% drop in prices. Such projections are kind of silly, except that the Chicago market seems to track them fairly well.
The price drops won't stop on a dime. They can bleed to death for years. 7% this year. 4% next year. 2% the next year. 1% for who knows how long. Check out the Japanese housing bubble for an eye opening example of what just a small drop each year can do over time to prices.
If you're truly concerned about getting burned, you might want to take another look at projected Option ARM recasts and resets, foreclosure rate trends in your zip code and the overall state of Chicago and Illinois in general (can you say higher taxes?). Commercial real estate is another one to consider if your area built up commercial space in the last ten years and "for lease" signs are now becoming prevalent. Nothing says urban blight like empty storefronts.
And yes, the govt money propping up the "Weekend at Bernie's" housing market is about to run out. Stop the music. At this point we don't know if Bernie is truly dead, in a coma or about to wake up paralyzed, but the BEST case scenario in bubble markets (and Chicago was one) is that prices stay flat for a while.
$1.25+ trillion to keep mortgage rates down (and indirectly, the stock market up), tax credits galore, foreclosure moratoriums and stalls galore, FHA loans for anyone who could fog a mirror. Gone, gone, gone.
Commence half-a**ed principal forgiveness and the short sale avalanche.
How do you think Bernie's gonna look by August?
As always, I could certainly be wrong. But considering all of the above, a dose of caution might go a long way.
Good luck!
PS. I think you asked a while back when I think our area will bottom. Each zip code is different. Over all (and barring bizarre inflation) I don't think we can bottom till foreclosures wash all the way through, employment is up for several months running and inventory levels get back to an 6-8 month supply. 2013 feels optimistic to me for a turning point. 2014 or 2015 feels like a better bet.
Couldn't agree more. Everyone is looking at the near past to predict the future (significant YoY price reductions from 2006-2009). I also strongly believe prices are done falling at any significant pace, unless we have some unexpected catastrophic deflationary event, which seems unlikely anytime soon.
Anyone who wants to buy and can say yes to a few basic questions should buy now. The path to homeownership is going to be more difficult and expensive regardless of home prices going up/down moving forward.
I like the 2014-2015 window as that is the when long term economic cycles bottom, and should be around the time the 3 industries of the future really begin to grow and pull us out of this mess (alternative/solar energy, nanotechnology, genetic science/medicine).
Multi-family foreclosure rate spikes in Cook County :: CHICAGO SUN-TIMES :: Business (http://www.suntimes.com/business/2145998,multi-family-chicago-foreclosure-040710.article - broken link)
So what you're all saying is that I will be stuck in my "starter home" far longer but at least I GOT a home right now, I probably couldn't have gotten one if I'd waited past this weird time in history. Will having already had one make it easier to get a mortgage in the future, if we are ever able to move?
If a person needs the 8000 to buy a home they are not ready to be a homeowner.
Cohdane,
You might be right about 2013-2014 price bottom for our markets (Oak Park, River Forest, Northshore). This is why I will continue to rent in Oak Park (frank lloyd wright district) and look to buy another 3 flat in Humboldt Park. I know the block and the people and have a good reputation among the hispanics as being fair.
I don't think the higher end markets in which you and I live will bottom for a few more years but I am hoping that the former "up and coming" areas are getting close to bottom price-wise. I buy for cashflow, not to flip. Even my 2006 purchase generates 200 per month positive cashflow. This place will generate over 1500 per month (which I can use to offset past losses). IRS only allows you to claim up 25k per year in passive losses if you make below 100K, which phases out above 150k. For 2 years I qualified for nothing but due to bonuses changing schedules I will have 2 years in which I qualify, so obviously I want to get as much of that back as possible.
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