People don’t look at the long term – we aren’t wired that way. The house I am in has gone from 900K to 2.5M since Jun ’03. I am renting at 33% of the cost of owning (ignoring tax savings). Thats right, in 4 years it has almost tripled. The free and easy credit and the constantly increasing home values made this a ride up outside of reality. Now we have reality. You need excellent credit and a substantial down payment to buy a home today.
The job losses in real estate, mortgage brokers, banks, construction, and all the companies which provided their services (secondary impact) have yet to be felt by the economy. The tremors have been happening for months, but the first explosion didn’t hit till this month. With the explosion, lava is coming down. But the villages are still a bit down away from the lava, but it is coming.
You can’t build a huge helicopter to take the village away to safety, you have to ride it out. In your smoldering village!
The main aspect of real estate is that it’s severely illiquid. As the loans reset, and the new folks can’t afford or have the credit for the current loans, it will put constant downward pressure on the market. We are truly living in a house of cards. Housing is not affordable, and it is especially not affordable for the large number of people who see their equity erode, their liabilities grow (and the interest rate), and their job prospects diminish as the fallout comes over the next few years (or more).
The suckers haven’t left the market, but I don’t think that there are enough of them to keep the prices stable. I think that while we have had an explosion in credit stability, the long term prospects are much more severe and as previously stated, there must be a return to quasi-affordability. The only reason that affordability didn’t matter previously was the manipulation of interest rates both by the government, and the policy of adjustable rates. Well guess what… Rates have adjusted! I think that the possibility exists that rates will not go up any more, but will go down slightly… I don’t see any easier answer.. I don’t know… What do you think?
