Why Home Prices Will Fall

[No DUplicitous DUpe]

Why Home Prices Will Fall
posted with permission from http://sane-ramblings.blogspot.com

How could home prices fall? The government is bailing out big lenders, helping some homeowners facing foreclosure and for new buyers creating ultra cheap mortgages with practically nothing down and giving them an $8,000 tax credit.

But they will fall and the reasons are sad but simple. Foreclosures are growing fast as borrowers either can't afford their adjustable loans or are losing their jobs and the job market is dismal. People are scared and when they get scared they slash their spending, which means more businesses will go under while many others won't hire.

This bodes badly for people taking on what is often their biggest financial obligation, purchasing a home. Many become fearful and won't do it.

Meanwhile, last week The Mortgage Bankers Association stated that as of September 30th, 1 in 7 U.S. home mortgages were delinquent or in foreclosure, the highest number they have ever reported. And they project that number growing worse.

So what should you do? Not knowing your personal situation, I can only generalize:

If you're a homeowner facing foreclosure, speak with your lender about a major forgiveness and new terms. If your situation is beyond that, you'll have to downsize.

If you're a potential buyer, be patient. If your job is safe and you intend to occupy that home for at least five years, proceed, taking advantage of the lowest interest rates in 50 years.

But in any case, these plummeting prices and the pain they will cause others are nothing to celebrate. These are our brothers and sisters and their children and in this collapsing economy any of us could find ourselves in financial peril. Please be compassionate and spare what you can to help those in need.

More columns by Dick Kazan at http://sane-ramblings.blogspot.com/
Mr. Kazan's Weekly Candlelight Vigil summaries at http://candlelightvigils.blogspot.com/
Economic Crisis Writing by Dick Kazan at http://economiccrisiswritings.blogspot.com/

[Warpy]

1. We might be over the cliff

but we'll continue rolling down the hill until we finally come to a stop.

The problem is the shadow inventory, properties being held off an already saturated market to prevent prices falling even farther. Allowing them to fall, while opening up the market to people who could qualify for more reasonably priced housing, would also force them to take big hits on their balance sheets, something they don't want to do.

Eventually, they'll either have to bulldoze or sell at a sacrifice, but they're pretending things are just peachy for now.

They're not. Some markets, like the northeast corridor, might have stabilized, at least short term. Forget about California, Florida, Las Vegas and Phoenix, though. Those places are still looking at a continued slide.

[No DUplicitous DUpe]

2. I often use the car over the cliff analogy myself...

Great minds??

[notesdev]

3. Might be another cliff ahead of us

As the unrepaired financial industry is depending on a relatively quick housing rebound. If interest rates go up first, most of them are goners.

[No DUplicitous DUpe]

4. That's an excellent point...

With the way the money supply is expanding, I don't see how interest rates can stay low.

[SheilaT]

5. Home prices have already fallen in many

places.

I bought a small (2bedroom, 2bath barely 1,000 sqft) home here in Santa Fe back in the spring and got a 4.75% rate. I was able to put 20% down and had some cash left to repaint and replace old flooring with tile. The most important thing is that I can afford the mortgage payment. Plus, it's about a hundred dollars a month less than my rent had been.

[Delphinus]

6. And 20% down seems,

according to a CNN talking head I happened to see earlier today, is the minimum down payment. He said banks aren't going to be caught again ... and it took me by surprise, 'cause I thought banks helped this problem along.

[SheilaT]

9. It's beyond despicable

that so many lenders were willing to make interest only loans, and ones where there were no down payments, and so on.

Of course, this has all happened before, just no with such drastic consequences. During the 1980's thee was a lot of what was called "creative financing", much of which included three or five year balloon payments, and adjustable rates. My husband and I decided against a home purchase involving a (I think it was a three year) balloon in 1989. Instead we bought a smaller and less expensive home that we could finance conventionally with a fixed rate, and never regretted it.

[No DUplicitous DUpe]

11. Fixed rate loans should be the only way to finance a first home..

Those balloon type loans are bound to become trouble in the long run. I guess the idea is to sell before the balloon becomes due, but that is not always possible.

[Greyhound]

7. The reason home prices will fall is simple. There is a direct link between the amount

a property can appreciate and the wages of potential buyers. The only reason prices got as high as they did was the smoke and mirrors financing created through 30 years of spending and borrowing against the equity built over the preceding 50.

Prices for necessities (shelter is a big one) can only rise as far as people's ability to purchase it. The artificially inflated house prices IFB & Co. created was only possible through massive fraud combined with dramatically devaluing the USD and as such was only temporary.

[No DUplicitous DUpe]

8. There is a direct link between the amount a property can appreciate and the wages of potential buyer

perfectly and clearly stated. Thank you.

[dysfunctional press]

10. "If your situation is beyond that, you'll have to downsize."

living in your car would definitely be 'downsizing'.

[pipi_k]

12. Must be the area...

My home's value did fall quite a bit last year, but since then it's been rising again.

OTOH, some people trying to sell homes in the area aren't getting near what they've been asking for them. Don't know if they're overpriced or what. I think maybe a couple of them were, since the owners were asking for almost twice what my home is worth but the size and location are pretty much the same.

who knows...

:shrug: