Who’s going to buy all of those foreclosed homes, even at 25% off? The $600K house is now $450K. Here in SD, that will still be out of reach of many first time homebuyers, assuming we return to the standard of 20% down, fixed rate mortgages. Maybe there enough first-time buyers renting right now with $100K ready to spend on a down payment/closing costs, I don’t know. Or maybe everyone is just going to use option ARMs from here on out. Perhaps if incomes go up between now and the time this plays out, a 25% maximum drop is possible. Of course if incomes are rising, we will have inflation which means interest rates are likely to rise as well which means payments will go up which means… Well, you get the idea. Also, if interest rates go up, are people going to want to use their $100K as a down payment when they could just buy CDs and collect interest? Certainly no one is going to be counting on home appreciation for a while, the group psychology will have been spoiled by the bubble casualty stories just now beginning to hit the news.
Who knows? It’s interesting that the question is now not, “are home prices going to drop?” but rather “how bad is this going to get?”
