Does this mean its the end of price drops as of now?
A couple things to keep in mind.
1) The areas that have been hit the hardest with dropping home prices have been the less expensive areas. Places where 20% down and a conformimg loan at $417k would get you a house. So, for these areas, the increase is not going to matter one iota.
2) This will make it so that some areas will now be “purchasable” with a conforming loans. For these areas that might indeed be a slight boost helping to hold up prices a bit. But only a bit. To qualify for a conforming loan you need to document income, have a down payment, etc.
3) Because interest rates are down, this might make it so that some small percentage of people who need to refi out of their adjustable will manage to do so. That will mean fewer foreclosures. Which of course means home prices not falling so fast.
4) The biggest impact will probably be psychological. This will give plenty of realtors ammunition to tell sellers to NOT lower their prices. That as soon as these loans are available, the buyers will come back and the market will pick up. Sellers will want to believe this, and will suddenly have a ray of hope to grab onto. I expect this to make sellers all the less likely to cut deals in the next month or two.
When you put all this together, I think what will happen is that this will slow the falling. Maybe hardly at all, maybe significantly. However, the problems that caused SoCal housing to start collapsing are still there and no government plan is going to take that away. It’s just a matter of how fast it falls.
And oh yeah… Right now the mood in punditland is that things aren’t so bad. Why we were just all overreacting, and that nasty down we just had in the world markets was caused by a rogue trader. But I have my doubts that all the Dorothy’s can keep us on this yellow brick road by clicking their heels so smartly. But then again, I’m sorta like Rich. I see the glass as empty and broken, not half full or half empty…
