Why house prices have to fall

[ladelfina]

I read somewhere that car financing was casually extending itself to 6, 8, or even 10 years! When I bought a car 48 months was extreme. I know some cars are a little more durable than before.. but, still!

 

[chinaco]

This was a bit of a bubble. Some people are left holding the bag. Yes, they overpaid. Some will walk away from the loan. Others (probably most) will eat the 25 - 50k loss.

Those who took the equity in a HELOC and spent the money have some unsecured credit. They got by lucky... they got the loan at a low price.

I lost money in the tech bubble... My bad, my loss.

House prices are probably a bit over done. Things will get back to normal. Those paper loses today will narrow in the next year or so.... big gains in the value of houses.

 

[Texarkandy]

Here's some thoughts I've had on the whole thing (in my inexpert opinion) not necessarily in any particular order.

* The bubble is deflating & house values have dropped a bit (more so in some places than others) - there will be a higher than average rate of foreclosures over the next year that will assist in dropping values, but things will settle down in that regard sooner than we think - and after a 5% to 20% decline (depending on the area) house prices will flatten out for a few years at least - & maybe 5 or 10.

* There will not be as many buyers in the market as there were due to:
A. lenders are already tightening up on who they will loan to & on what terms; &
B. The economy - some folks are starting to hurt & this will continue

* New home construction has already started slowing and will continue to slow due to A & B above + increased materials costs (due to oil prices, the dollar, & inflation in general) making it harder to for new construction to compete with the prices of existing homes whose prices will remain relatively flat. A few large new home builders will go out of business & more than a few will drastically scale back the size of their business & will focus more on building subdivisions with smaller homes. The slowdown in new construction will cause an additional drag on the US economy.

*Middle class Americans will tend to live in smaller homes in the future than has been the trend in the past 25 years toward more sq ft. due to a variety of reasons - but fuel/electricity costs being one of the biggies.

* I'm guessing we may also see at least a small boom in the the demand for residantial rental properties over at least the next few years as people will tend to be renters longer before they buy than in the past.

* As to the future of interest rates (which I think are being artificially held down right now)- well, I'd like to hear anyone's thoughts on that......

 

[DanteAlighieri]

Here in SoCal I think we are one of those "other" places - we have a ways to go before we are out of the housing mess.

Every day I see small 1970's fixer-uppers come on the market at $500-600k in relatively crappy locations. Still stupid prices.

Here's some thoughts I've had on the whole thing (in my inexpert opinion) not necessarily in any particular order.

* The bubble is deflating & house values have dropped a bit (more so in some places than others) - there will be a higher than average rate of foreclosures over the next year that will assist in dropping values, but things will settle down in that regard sooner than we think - and after a 5% to 20% decline (depending on the area) house prices will flatten out for a few years at least - & maybe 5 or 10.

* There will not be as many buyers in the market as there were due to:
A. lenders are already tightening up on who they will loan to & on what terms; &
B. The economy - some folks are starting to hurt & this will continue

* New home construction has already started slowing and will continue to slow due to A & B above + increased materials costs (due to oil prices, the dollar, & inflation in general) making it harder to for new construction to compete with the prices of existing homes whose prices will remain relatively flat. A few large new home builders will go out of business & more than a few will drastically scale back the size of their business & will focus more on building subdivisions with smaller homes. The slowdown in new construction will cause an additional drag on the US economy.

*Middle class Americans will tend to live in smaller homes in the future than has been the trend in the past 25 years toward more sq ft. due to a variety of reasons - but fuel/electricity costs being one of the biggies.

* I'm guessing we may also see at least a small boom in the the demand for residantial rental properties over at least the next few years as people will tend to be renters longer before they buy than in the past.

* As to the future of interest rates (which I think are being artificially held down right now)- well, I'd like to hear anyone's thoughts on that......

 

[Retire Soon]

don't forget that in california in the last few years between 50% and 75% of all new mortgages every year have been ARM's, I/O, negative ammortization and all the other revolutionary financial products. so that figure means people are probably paying 50% of income based on teaser rates. let's see what happens to home prices when most mortgages in california are your plain 30 year fixed

You've raised a very valid point. The days of no qualification easy-money financing are history. Escrows simply are not successful with money being unavailable.

 

[packrat44]

That's good because I REALLY want a two-car garage, and don't have any garage at all. Not even a carport. But I do have a driveway.

My next house will have a two-car garage, but it's good to know I won't die for lack of one in the meantime.

I have the house for you. Five car garage (2 bays are 40' deep; 3rd bay is 22' deep) plus 1 carport; house has about 2,700 SF - only $235K.

 

[W2R]

I have the house for you. Five car garage (2 bays are 40' deep; 3rd bay is 22' deep) plus 1 carport; house has about 2,700 SF - only $235K.

Wow! A 5 car garage! Sounds like a dream house.

Let's see. One car parked in the middle. The ends of the deep bays can be a workshop. My lawnmower and so on can take up an area on one side. The rest can all be storage! Sounds good to me.

 

[Texarkandy]

Wow! A 5 car garage! Sounds like a dream house.

Let's see. One car parked in the middle. The ends of the deep bays can be a workshop. My lawnmower and so on can take up an area on one side. The rest can all be storage! Sounds good to me.

OK - here ya go Want2retire:
(Since this has become a "House for Sale" thread)

22 y/o, 4 bdrm 3.5 bath 14x25 rec-room, 3400 sq ft - 2 car garage w/large tool/storage room, 3 acres, 3 y/o gunite saltwater pool, large wraparound rear deck overlooking private wooded area, lots of upgrades, end of cul-de-sac on low-traffic street, quiet area close to major hospital & lots of new shopping with new upscale homes nearby, great local school district, etc etc etc

Texarkana, TX - the second fastest growing small metro area in the US for two years running (per Forbes) - 70 miles from Shreveport & 150 from DFW.

& I'll build you an additional 2 car garage for 5 or 10K extra (depends on how fancy u want it.)

(Oh, & Texas A&M has already broken ground on a brand new 4 year University being built from the ground up about a mile & a half away - Ross Perot reportedly agreed to fund the engineering school if they would put it here)

340K (negotiable)

 

[W2R]

Well now, Texarkandy, what would I do with 3400 square feet? There's only one of me, y'know. I'd get lost going from my bedroom to the kitchen, to make coffee in the morning! Sorry, no dice.

Actually Packrat's house is too big for me, too. I just liked daydreaming about having a 5-car garage. I'm garage-deprived!

 

[Texarkandy]

OK - I'm sure I can find a way to convert some of the house into garage

 

[packrat44]

Wow! A 5 car garage! Sounds like a dream house.

Let's see. One car parked in the middle. The ends of the deep bays can be a workshop. My lawnmower and so on can take up an area on one side. The rest can all be storage! Sounds good to me.

Actually there is workshop besides the 5 bays. It is a room (17.5' x 13') that is in front of the 22' bay. I use it for rebuilding engines; working on motorcycles; etc. DW does her crafts such as stain glass; etc. Equiped with 220v for welder and large air compressor.

 

[W2R]

Actually there is workshop besides the 5 bays. It is a room (17.5' x 13') that is in front of the 22' bay. I use it for rebuilding engines; working on motorcycles; etc. DW does her crafts such as stain glass; etc. Equiped with 220v for welder and large air compressor.

**DROOL!!** Who needs a house with a garage that big?

Gee, I dreamed about your garage all night without even knowing about the workshop. Can it be that your garage is actually TOO big for me? Wow - - I think it actually might be. Sounds like a wonderful family house, though!

 

[packrat44]

**DROOL!!** Who needs a house with a garage that big?

Gee, I dreamed about your garage all night without even knowing about the workshop. Can it be that your garage is actually TOO big for me? Wow - - I think it actually might be. Sounds like a wonderful family house, though!

A garage can never be too big for a Gear Head who likes hot rods. I built this first house when I was still a bachelor. We are going to move to our second house which has a 1,150 SF garage and will soon have a shop about 3,200 SF. The house is smaller at about 1,600 SF.

If the garage/shop is large enough and well equipped with tools, it will keep the hushband from hanging around in the house bothering the DW.

 

[Independent]

Here's some thoughts I've had on the whole thing (in my inexpert opinion) not necessarily in any particular order.

* The bubble is deflating & house values have dropped a bit (more so in some places than others) - there will be a higher than average rate of foreclosures over the next year that will assist in dropping values, but things will settle down in that regard sooner than we think - and after a 5% to 20% decline (depending on the area) house prices will flatten out for a few years at least - & maybe 5 or 10.

* There will not be as many buyers in the market as there were due to:
A. lenders are already tightening up on who they will loan to & on what terms; &
B. The economy - some folks are starting to hurt & this will continue

* New home construction has already started slowing and will continue to slow due to A & B above + increased materials costs (due to oil prices, the dollar, & inflation in general) making it harder to for new construction to compete with the prices of existing homes whose prices will remain relatively flat. A few large new home builders will go out of business & more than a few will drastically scale back the size of their business & will focus more on building subdivisions with smaller homes. The slowdown in new construction will cause an additional drag on the US economy.

*Middle class Americans will tend to live in smaller homes in the future than has been the trend in the past 25 years toward more sq ft. due to a variety of reasons - but fuel/electricity costs being one of the biggies.

* I'm guessing we may also see at least a small boom in the the demand for residantial rental properties over at least the next few years as people will tend to be renters longer before they buy than in the past.

* As to the future of interest rates (which I think are being artificially held down right now)- well, I'd like to hear anyone's thoughts on that......

This looks pretty realistic to me.

I'm wondering about the "smaller homes in the future". We've seen a continuous increase in average square feet in new construction over the last 60 years. Is that going to stop?

I can argue that median wages for males have been about flat for the last 30 years (CPI adjusted) so the increase should have stopped before now. However, we've had more two income families, so more earners to pay for the house, and women's hourly earnings have been going up. So that has supported the increase.

Also, new single-family houses are bought by high income people, and high earners have had significant gains.

But, sooner or later, the growth in women's hours has to stop. Also, the high income people need to re-sell to lower income people, and that puts downward pressure on resale prices. Maybe it's getting harder to make the case for bigger and bigger houses. Then there's heating costs and gasoline costs you mention (higher gasoline prices make it more expensive to build on big new lots further out). If the trend is going to change, we should see it in the next few years.

 

[al_bundy]

my in-laws who are going to retire in 10 years or so have already started looking to sell the house which is around 2500 sq ft and buy a cheaper apartment. they said they are tired of doing the work to maintain it

 

[HFWR]

In the future, many of these McMansions could end up as "plexes"...

 

[barbarus]

House prices are probably a bit over done. Things will get back to normal. Those paper loses today will narrow in the next year or so.... big gains in the value of houses.

Chinaco, are you pulling our collective leg here?

This is the kind of statement that I'd make, but is would be dripping with sarcasm.

 

[barbarus]

* As to the future of interest rates (which I think are being artificially held down right now)- well, I'd like to hear anyone's thoughts on that......

In a few days, rates are going to artificially go significantly lower. Then down again the month after, and so on.

I can guarantee that they won't drop by more than about 300 basis points though!

 

[Retire Soon]

"A Glut of Foreclosed Homes of Historic Proportions"

According to an article in the WSJ today, "A glut of foreclosed homes of historic proportions" is causing price declines to accelerate at a rapid pace. 40% of home sales in both San Diego and Las Vegas are now comprised of foreclosures. "The overabundance of foreclosed homes is likely to push down home prices for much of the country for the next several years," predicted a housing-research firm in Cleveland.

The buyers are there, but they're expecting fire sale prices. It's not a pretty picture if you happen to live in one of these stricken areas.


Wave of Foreclosures Drives Prices Lower, Lures Buyers - WSJ.com