Stansd… No bashing here! I agree with some elements of the reasoning for a quick change, but I fear it will be in financial markets not homes. Here is what I feel is a more likely scenario.
Stock market volatility, but not too much drop (maybe 1-2K over the next couple of years (could be worse)). Credit tightening. More importantly, home prices falling year over year…. Why? Because people still think that the prices now are somewhat high but normal, they don’t realize that prices should be at about 50%-60% of where they are now. Look at the Case-Shiller graph. Our graph is actually much worse (much higher highs, much lower lows in CA – especially in SD.
Over the next few years, banks are NOT going to have easy 7% loans…. Expect them to be 8% and up as even if the fed drops rates, the differential will not be enough profit for banks while the home prices are dropping. Price drops will destroy equity (it will just be GONE! – It never existed anyway except for those with the foresight to exchange their properties with someone else holding the bag). As the equity tumbles, the consumer, already barely hanging on credit wise, will stop spending. The economy will suffer, jobs will be lost, cycle of economic downturns, recession might become depression.
The biggest problem is that people (even on this forum) really don’t see that 2000 prices were still out of wack (forget about 2002). Look for prices to go to 1997, possibly not even adjusted for inflation. Why does everyone listen to the parrots on wall street, NAR, builders who say that by 2009 or 2010 it will recover? As prices keep falling, it will be IMPOSSIBLE to sell. We have not had ANY fallout from the current pricing of homes yet…. Just a few short sales! Wait for the pain! It could take a few years to really start the pain and another decade to live through the pain.
p.s. I DON’T hope for this scenario… I am not a sadist! But I am a numbers guy and am not afraid to look at historical data and our current situation as it really is…
