Well, I think the big difference this time is the level of debt that people take on to afford a house.
Like the professor said, homeowners are all speculating on a price increase. Once that price appreciation is gone, there’ll be panic. My guess it that 50% of house in SD were bought by speculating resident homeowners or investors.
The new financial products out there have caused buyers to no longer consider the price of the homes they are purchasing and they now look at the monthly payment. Sure with a buy-down to 1%-3% buyers can swing the payments but they’ll be in for a big shock once the loans reset.
I’ve been following the new developments (condos to expensive SFR), and with incentives, I see that we already have an effective 10%-20% price drop from the peak as compared to similar resale homes. That information is not yet reflected in statistics. Houses built in 2003-2004 are only now being listed for sale at a loss. If anyone you of feels like doing so, go to a new project and check out prices. Then look for previous purchases in the same project. You’ll clearly the the 10-20% decline.
As compared to the last RE downturn, the internet will spread the info widely so the depreciation will over correct on the way down. MLS and other data is now widely accessible to everyone. In 5-10 years, it’ll be a different generation of buyers.
I think that the difference this time is the level of speculation out there. That’s what my gut instinct is telling me.
The sentiment for a 50% correction is already out there. But no reputable economist will say so lest he is labeled irresponsible. It’s more circumspect to predict 20-25% decline with price stabilizing.
Remember Bush the father insisting that there was no recession? He was trying to talk up the economy. Now, we have vested interests trying to talk up real estate. But everyone is already feeling the pain.
Yes, yes, you guys want hard numbers… however, compiling that info would become a full time job.
