I look at things in terms of rent vs. owning. When it becomes cheaper to own, the market booms, and vice versa. Right now, renting is by far the better move. Long-term, I still feel owning is the better move, but I understand that’s debatable. My point is that rents will keep increasing and houses will keep decreasing until it again becomes the better move to own. Someone with more free time than me can probably produce a graph to predict when this will be.
If houses dropped 50%, that would make the median house about $250K (just guessing at this number). I would also speculate median rent on a house to be roughly $2000/mo. For $2000, you can easily afford a $250K house (P & I @ 6.5% on 250K = $1580), so prices can’t drop that far. $2000/mo basically affords you a $315K house @ 6.5% INT, so I would look at that as the floor, and I think that’s too low, so basically prices can drop no more than about 35% using this theory.
It’s my feeling that the Fed will lower the prime rate, therefore resulting in lower overall interest rates, which will help all the ARM resets and also generate more home buying. It won’t solve everyone’s problems, but it should alleviate some of them.
