Lets look at the the last downturn in CA when nominal home prices actually fell. The primary reason for that was massive job loss as a result of the Defense/Aerospace downturn. Home prices fell because people had no income to meet the mortgage and had to sell and actually for that matter leave. That increased the liquidity of RE and actual home prices fell. If people can make their mortgage payment they will stay in their home and sales volume will fall and while home prices remain flat. That is actually very bad for RE employment. Rather than debate will home prices fall and by how much, I think the true debate is what will kick people out of their homes. Right now we are seeing a huge wave of foreclosures really hitting the bottom of the market first thats increasing liquidity and that is where we are seeing actual price drops. What we need to determine is how high up the food chain will the mortgage problems go. What I see is ARM resets to foreclosure is equal to aerospace/defense job loss. One thing to remember for people that bought pre 2003 is the rise of the HELOC. Also it does appear there is a greater possibility of recession on the horizon.
So how many people will lose their homes to bad mortgages (including HELOCS)? how far up the food chain does this go? How many people are at maximum pain with their reset and will put their property on the market? and the big question how many additional homes will go on the market in the event of a recession?? Another question to ask, how tight will credit become when we hit the true brunt of the foreclosure storm?
Unfortunately we are still very early in the game. IMO the answer to many of those questions don’t look to promising right now.
