What could make the housing market stable?

[LostCat]

There has been a ton of debate on the housing market folding and we all know why and how it is going to fold now. For some of us it’s a good thing, for others, yeah they’re f@%ked….

Let’s push the debate of the falling market aside and talk about what types of things, if any, would keep the market stable and from falling and maybe possibly seeing an upswing.

[kewp]

The median income in San Diego County triples overnight?

[blahblahblah]

IMHO, the market will return to stability when:

1) Most people look at their house as a nice place to live, an enjoyable consumer good, and a way to even save a bit of money in the long run, NOT as an “investment” or as a way to get rich.

2) Mortgage lending standards return to their historical norm.

3) Substantial down payments become a requirement for all but the most wealthy of purchasers.

[(former)FormerSanDiegan]

Not sure what you mean by stable. Seems to always either be on an upward or downward trajectory to me over the last 20 years.

If you mean the next turing point, here’s my opinion …
When the changes in prices, interest rates, rents and incomes reach the point where monthly carrying costs to buy approach that of renting, you will see things turn.

[Bugs]

When the number of active listings drops from 17,000+ by 65%.

[Doofrat]

http://piggington.com/images/primer/flattening.gif

Maybe massive inflation?

[an]

I agree w/ kewp. That is the fundamental. When income support the price. Be it income triples to match current price or some kind of combination of falling price and income rise.

[LostCat]

Doofrat, this is my concern. The White House is printing green backs faster than ever right now to deflate the dollar in global markets. Our labor is going to get cheaper globally, but things that are bought over seas are going to become more expensive here. As long as salaries keep up with inflation, then this could be something that might happen. But how fast does it need to happen?

[LostCat]

Doofrat, this is my concern. The White House is printing green backs faster than ever right now to deflate the dollar in global markets. Our labor is going to get cheaper globally, but things that are bought over seas are going to become more expensive here. As long as salaries keep up with inflation, then this could be something that might happen. But how fast does it need to happen?

[Cow_tipping]

I dont think its going to stabilise for a loooong time.
The baby boomers as they start to sell so they can have cash from their house or they die and their kids are trying to liquidate etc, will continue to swamp the market and set new low marks for prices. However that is a few more years out. If we are done with this crash very very fast, we may have some recovery going before that happens and that may be the right time to get out of ownership.
But if this crash drags on for 7-10 years, we’ll run smack into that window.
Cool.
Cow_tipping.

[PerryChase]

The bubble will take some time to deflate.

Susan Bies of the Federal Reserve said that the Fed doesn’t want to hamstring “innovation” in the financial sector. That means that the financial services company will continue to come up with new products that expand the debt market and give credit to consumers/buyers who heretofore did not have access to credit.

Since we won’t see a cut-off of credit anytime soon, consumer confidence will hold and we’ll see the housing market slowly deflate over years. I believe it’s psychologically healthier to have a slow protracted downturn. Economically, we’re much better off to cut out losses and move-on.

[Sandi Egan]

Since we won’t see a cut-off of credit anytime soon, consumer confidence will hold and we’ll see the housing market slowly deflate over years. I believe it’s psychologically healthier to have a slow protracted downturn. Economically, we’re much better off to cut out losses and move-on.

I kind of believe in self-correcting markets. If our assumptions are correct, and subprime mortgages are too risky, the lenders and/or MBS investors are going to get that soon or late. At that point, they will either stringent mortgage requirements or significantly increase subprime interest rates, both of which will push prices down. Additionally, if home prices fall for any prolonged period of time, the mentality will change and RE will become as scary and shunned an investment as hi-tech stocks were in 2002. Right now a substantial percentage of population still seems to be too optimistic and market downturn does is yet not a common knowledge.

I believe we will see a sharp price declines in coming years when all of the above happens. Inflation is of course going to somewhat soften the process, but in a short (2-3 years) period it’s negligible.

My bet is, by 2009 the median/sq.ft price in San Diego will be down by about 40% from the peak. After that, it will continue slightly downward for several years, but most of losses will be offset by inflation.

[4plexowner]

cow_tipping brings up a good point

the baby boomers are relying on the equity in their homes for retirement (average 401K account has less than $50K in it) – that means selling, refinancing or doing a reverse mortgage

2008 is the leading edge of the 78 million baby boomers heading into retirement

by the time the excesses from the real estate bubble have been worked through it may be time for massive selling by the baby boomers

[PerryChase]

I also agree that the retirement of the baby-boom generation will bring unforseen changes. The housing market may be depressed for 2 decades.

[IrvineRenter]

Limit Lending

I have a crazy idea that might bring stability to the housing market: limit lending to a multiple of verifiable income.

Let’s say Sacramento passed a law that said any amount loaned on a primary mortgage over 3 times verifiable income on the date of loan origination did not have to be repaid. Further, any other mortgage claims which exceed 90% of property-tax value or one years verifiable income did not have to be repaid. What would happen?

IMO, the first thing that would happen is that lenders would stop lending insane amounts of money because there would be no obligation for repayment. This would effectively limit house prices to a multiple of income plus available savings. Exotic loan terms would not matter because the total amount is capped. Plus, the “verifiable income” provision would immediately eliminate all “liar loans.” Since the only way to get ahead at that point would be to save to increase a downpayment, people would actually start saving money. The limitation on total mortgage obligation would eliminate the 80/20 loan and ensure homeowners had some equity in the property ensuring foreclosure rates would remain low. Plus, by limiting this to “property-tax value,” people would be unable to take out HELOC’s to spend their equity once prices began to appreciate. Proposition 13 would force people to save.

If something like the above were passed today, it would be the apocalypse for the housing market; however, if something similar were put in place after the coming crash, we could ensure home price stability for years to come.

[Author]

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