Are you sure Bugs? With housing prices so high now, and interest rates up, who can really afford these homes? Remember that the majority of buyers qualified for teaser rates of 3%. How many people qualify now for those same houses, with teaser rates at 5%, i.e. a payment almost 50% more? I really think the bubble was popped by high prices and high mortgage payments in the low end, and this started actually in 2004. That’s when inventory started rising.
In April 2004, inventory was 3,000, as it had been for the past few years.
By June 2004, inventory was around 6,000, and by fall, it was 12000. Realtors, feel free to correct those numbers if they are off.
The market softened in 2004, and then the price declines followed after ward.
After the low end softenend, those people could not sell their homes and move up to the 2nd tier, so by 2005 the mid tier softened also. Homes above $500K started dropping in price in 2005.
Now, all homes are dropping in price, as the chain was broken. But remember, the chain was broken in 2004. It takes a long time for these ripple effects to move through the market and economy.
This was explained to me by Bob Casagrand.
If interest rates had stayed low, the chain would have been broken eventually anyway, because people can only afford to pay a certain amount for their home. There is NO way that a starter home could ever end up at $1 mil. How would someone earning $40K/year ever afford it? So it had to top out sometime.
The double whammy of high prices and higher interest rates killed this bubble. Now what brings it down is the reverse psychology. Housing no longer is a sure money maker. Like Bugs said, why stretch into a home if it is no longer going up?
Most people have no idea the market will really fall. All they know is they see the For Sale signs up for many months, and they don’t have that sense of “housing only goes up” anymore. So the rush to buy is gone. Others are turned away when they apply for a loan.
How many people can qualify for a starter home now with interest rates almost double what they were in 2003? So definitely, the number of people who can afford the current prices has declined, because 80% of our buyers were relying on ARMs, and those ARM rates have really shot up.
