Following up on Peter’s comment, I think people overestimate the effects of foreclosures and rate resets. IOW, “halting” foreclosures and keeping rates artificially low will not stop the declines over the long run.
IMHO, prices will continue to fall for the following reasons:
1. No more HELOCs and cash-out refis unless you have a significant amount of equity and can truly qualify. So many people have been living off their “equity,” using more debt to pay off existing debt — using the cash-out/HELOC money to pay off their ever-rising mortgages and/or credit cards. The more debt they took on, the more they were forced to go deeper in debt…to pay off the debt.
2. Job losses. BIG recession here, guys, and it’s probably going to get a lot worse. It’s much more difficult to replace a $100K+/year job than a $20K/year job.
3. Investment income is going to be much more difficult to come by in the near future, IMHO. Interest rates are way down, and the stock and bond markets are much more risky than what the returns justify. I’ve made pretty decent returns over the past few years, but plan on making near nothing this year, and for the next few years. It’s all about capital preservation at this point, IMHO. Rich people (the kind who buy $1MM+ houses) rely largely on investment income.
4. No more money from the starter home market. As places like O’side and Escondido return to 2000/2001 levels, there is no more “free money” coming from the sellers of those homes. That’s largely what drove prices up across the board during the bubble (that — plus the loose lending for higher-priced homes — catapulted prices in the mid-high tiers).
5. Baby Boomers going from net buyers to net sellers. The peak years for home purchases for Boomers was from 1971 through about 2009 (max). This is based on using the 1946-1964 definition, and assuming peak buying years are between 25 and 45 years old.
6. Lending standards. At some point, lenders are only going to make loans that they believe can actually be paid back. Without the many govt subsidies and bailouts, we’d be much further along in this process, but the govt wants to drag this recession out for as long as possilbe. Still trying to figure out their logic, but there it is.
Anyway, that’s my 2 cents, and I’m sticking to it! 😉
