Sadly Powayseller, foreclosures is what the housing market needs to correct the price imbalance. It’ll tighten the credit situation and that really has been the driver on overinflated housing prices.
In the next few years, don’t be surprise if that $650,000 house you’re looking at is $450,000 and you can still barely afford it. If mortgage rates head back to 8% range, the payment will still be in the $3000/month range.
That’s a drastic scenario, a 30% drop and rising rates, but they’ll fuel each other. At the same time, if rates climb towards 8% and pricing doesn’t drop significantly, affordability, which is already extremely low, falls further and the volume dries up and you become trapped in your home.
It’s a double whammy, flat or falling prices breaks the incentive to buy and rising interest rates break affordability for those that are still willing to buy,
When the foreclosures start and the lending tightens up, how many people are going to be coming up with $120,000 down? or even $60,000, plus closing cost, points, etc. to be able to do a 80/10/10. Let alone swing the payments on the first and the second.
