The more important question (I think), is what happens to the people who aren’t selling because they didn’t sell at the top, but still would like to get out their equity?
I especially refer to a lot of baby boomers, who might have counted on their home as their retirement egg – especially as they didn’t really save any other money!
While I think that the vast majority of folks who would like to sell sometime in the next 5 years or so are waiting for prices to level off and go higher, what will their sentiment be if things keep getting worse? I think that there is still way, way, WAY, too much belief that the market will level off and will start appreciating at about 4% per year by next year or the year after.
I ask why?
The CASE Shiller index has us at around 300ish with a top of 320’ish? Most of the other crazilly priced communities maxed at 250ish and never got to the 300’s… Look at whats going to play out in the mortgage market… Higher mortgage rates in opposition to interest rates (as the lenders price in some of the future risk – they didn’t make enough money to cover the problems.), and further sinking home prices. Do you think this will be over next year???? The resets will go on for years. The 5 and 10 year ARM’s will be resetting as well and for those people who didn’t expect to stay in their homes, they will need to dump at some point.
If the market keeps going down for the next 5+ years… At what point to people say ‘STOP THE TRAIN AND LET ME OFF!’…?
There is no panic out there yet. What happens 2 years from now when prices have gone down another 20-30%? (Or even 10-20%)…. If you have a solid citizen, with good credit, with 70% equity in their home, and the prices go down 30%, they have lost almost half, not a third of their equity. And do you think that most of the people who own 1M homes only owe 300K on them? Including paying for college, cars, vacations, investments, etc? I don’t think so!
I think that there will be an ever increasing group of people who need to cash out, and they will keep dropping the prices until they do. It doesn’t take a large number of these people to push the comps down…. Just my opinion.
