While a 25% decline is unprecedented in modern times, some economists are beginning to talk about it. "We now see potential for another 25% to 30% downside over the next two years," says David A. Rosenberg, North American economist for Merrill Lynch ( MER ), who until recently had expected a much smaller slide.
Shocking though it might seem, a decline of 25% from here would merely reverse the market's spectacular appreciation during the boom. It would put the national price level right back on its long-term growth trend line, a surprisingly modest 0.4% a year after inflation. There's a recent model for this kind of return to normalcy after the bursting of a financial bubble. The stock market decline that began in 2000 erased most of the gains of the boom of the second half of the 1990s, leaving investors with ordinary-sized returns.
House prices may drop up to 25% - Businessweek
by DanTheMan 10 Replies latest social current
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DanTheMan
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PEC
Another self-fulfilling prophecy? Philip
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ColdRedRain
Cheap housing! Woohoo! I can finally move out!
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Hortensia
houses in my town are down by nearly half what they were a couple of years ago.
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SWALKER
After reading the article, I have to admit that it's hard to place the blame on any one group, there were so many that had their hand in the cookie jar! I think I've had 2 homes with adjustable mortgages and of course the payment varied with the interest rate. When I purchased the homes, I took the highest figure and determined that I could pay it and left myself a considerable margin in case things went wrong with my job. I'm having a hard time understanding why anyone would get a mortgage at the lowest rate and not allow themselves room in case it reached the higher one.
I can completely understand if someone lost their job, but this isn't the cause in a majority of the cases. These people are not that stupid. Why would the borrower risk this? Greed? Perception that home prices will forever keep rising? Drugs?
Swalker
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freydi
I always looked at real estate in terms of bond pricing. When expenses(interest) go up the price you pay for the bond goes down. In the case of housing all expenses for everything has gone up, eg taxes, utilities, repairs etc. So when all those things go up, what does that to do the underlying value? It ought to decline. But it obviously hasn't. Sooner or later things have to adjust. Reminds me of the cobweb theory that relates to farmers. When prices are low farmers are supposed to plant less which creates a shortage and higher prices. But instead they plant fence row to fence row because they need the money. Conversely, when prices are high they also plant fence row to fence row to optimize profits. Grain prices that have been so low for so long, and now that they are at record levels the farmers can't believe it. It's the reverse with real estate that's been so high for so long, people can't fathom a 30% decline. Nobody ever lost money in real estate, right? It's always a buyers market.
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DanTheMan
Swalker:
Perception that home prices will forever keep rising?
I'm really annoyed with myself for biting on this one. I always felt a tinge of suspicion that home ownership isn't the foolproof financial strategy that everybody was pumping it up to be in earlier years of this decade. But in 2002 I caved in and bought a house. Now, houses in my area are sitting on the market for months and months, there's foreclosures all over the place, it's just f'n ugly. From the article (italics mine):
"We have been fed the illusion that acquiring a home was a magic key to stability, to wealth-building," says Wilkins, who travels the country advising lawyers and others on how to handle foreclosures. Even though she is president and founder of an Indianapolis company called Home Ownership Matters, which promotes responsible ownership, Wilkins says she never believed the "poppycock" that homeownership was a sure path to wealth, calling it a myth foisted on lower-income Americans by politicians serving the builders and bankers
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nvrgnbk
that acquiring a home was a magic key
This was the problem.
Many were buying homes that were out of their reach thinking that all would be ok, as if by magic.
However, owning some piece of real estate, assuming it was purchsed at FMV and not greedily grabbed in some ludicrous bidding war, will in the long run provide a part of the formula for personal wealth.
Speculation, in part fueled by the availability of ARM's, got us into this mess.
Working people opting to buy modest homes in lieu of paying rent to a landlord did not.
JMO.
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Satanus
Praise w bush.
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anewme
I am so happy about the drop in house prices!!!!!!!!!!
I have been going to college and will have my certificate this December
and begin my new career in the medical field.
My Credit Union will give us a loan for a modest home they said!!!!!
All I ever wanted was a home of my own and a happy family life.
My dreams may be a reality soon!
(Where I live the rents are more than the average house payment!)