Obviously we’ll have to agree to disagree on this. But I’ll try one more time:
Price discovery occurs when the borrower who received the principal reduction SELLS THE HOUSE ON THE OPEN MARKET. This is a perfectly valid arms-length transaction and thus a perfectly valid comp. The latency occurs because the price discovery (subsequent open market sale) occurs months or years after the principal reduction. The end result, from a macro standpoint, is the same: prices trend downward. The actually principal reduction per-se is a non-event for purposes of appraisals done at the time the mod occured. Get it? The lower prices reflected by the principal reductions DO feed back into the loop, just with a long latency.
As far as your desire for immediate price discovery goes, I’m guessing you are not going to get what you want. That doesn’t make me happy. It’s just how I call it.
So we’ll see soon enough — next week, I guess — if it’s to be death by fire (interest rate reductions) or ice (principal reductions) or both (water?)
My guess is that it’ll be some combination of the two since that seems to be the modus operandi of the bailouts: throw everything at it, including the kitchen sink.
Finally, I’ll still stick with my assertion that principal reductions will bring prices down quicker than interest rate reduction mods. So in my mind, they’re the better of two evils.
