20% is a pretty steep drop. Many places are already down 50% to 60% off their high. Some of the more well-to-do neighborhoods have yet to see that kind of drop, but are still down 15% to 30%. A drop of another 10% is more than likely before the real bottom.
In order to see when we’ll be on our way out of this, you have to be able to see the ‘big picture’. Our government is playing hard ball with China right now. So currency exchange is playing a big roll in helping to get us back on the fast track to recovery. China has manipulated their currency for years. While that did not singlehandedly cause our problem, it did contribute to it.
As more manufacturing moves offshore, there are less jobs. The gov is fighting back by using multiple methods.
The U.S. will continue to devalue the dollar. While this may seem bad to some extent, it isn’t as bad as many may think. A weak dollar makes America more competitive. Manufacturing jobs will return to America. Exports will grow. And last but certainly not least, as the Treasury buys up bonds, the lending rate will drop (The next Fed meeting on 11/2 and 11/3 there will be a key announcement about their bond buying measures. This will be huge indicator of what will happen to the lending rate in the short-term).
The lending rate plays a key role in freeing up money. Right now many people cannot get a conventional loan because…first of all many people do not have $50 to $100K sitting in the bank for a downpayment, and most people have less than stellar credit due to the changes in the credit rating structure. The only alternative is FHA (Big Brother).
As the lending rate continues to fall, FHA loans will become more and more attractive. The breaking point, which is rapidly approaching, will occur when FHA rates are far below conventional rates. This will force the banks into easing lending, and the requirements for lending. Either that or America will be owned by the government, as housing represents 70% (think socialism on a mass scale).
That simply cannot happen. The banks won’t allow it.
So….watch the lending rate. If you get in when the rates are past the tipping point, it’s already too late if you’re looking to buy a home. Prices will no longer drop because homes will be more affordable with a lower lending rate. This will cause people to start bid wars for homes again, and prices will begin their ascent. Corporations will pay less interest on their debt, which will free up more money.
And then comes inflation, further down the road, which will be offset by raising prime, etc. But inflation will be needed to help to get us out of all of the borrowing.
Look…it’s not all gloom and doom. It’s easy to get trapped into thinking that when the sky is falling. America is resilient. We will come out of this.
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