BEWARE OF THE SECOND "BUBBLE"!

By
Real Estate Agent with Coldwell Banker Realty-Schweitzer Mountain, Sandpoint, Idaho SP37235

Is it a bad thing that home prices continue to slide?  I know that, over the summer, prices seemed to have stabilized (at least according to the media and some of the AR bloggers).  Unfortunately, I didn’t notice that trend here in North Idaho.  In fact, according to the recent S&P Case-Shiller Index data, home prices are slipping again;

 

“…Coming after a series of solid gains, these data are likely to spark worries that home prices are about to take a second dip…” 

 

BUBBLEI am in the camp that believes continuing falling home prices are a necessity to eventually help stabilize our economy.  The housing bubble has definitely popped but it has not yet “evaporated”.  According to the Wall Street Journal25% of home mortgages are still underwater (negative equity) and, with a further decline in home values, that number is bound to increase.  Even more alarming is that more than 40% of borrowers who took out a mortgage in 2006, when home prices peaked, are under water.  This means that home owners will have two choices; 1) stay put in their homes until the market recovers sufficiently to move on (which I think is a good thing) or, 2) face the  prospect of a foreclosure and all of the ensuing consequences. 

 

CAUTIONIt appears to be an inevitability that the housing market will continue to slide until a stabilization has been achieved.  This will, by necessity, leave “home-owner shrapnel” in its wake.  What we need to be leery of is continuing the policies that helped create the bubble.  The FHA, Fannie Mae & Freddie Mac needs to adhere to tighter lending standards to help insure against risky financing which, in turn, will help to prevent higher home prices. In addition, tax credit incentives for home purchases sends the wrong message.  These tax credits are scheduled to end March 31, 2010 and should not be extended.

 

 

In short, the thoughtful, prudent and QUALIFIED home buyer gets rewarded for his/her “wise” purchase…if you can’t afford a mortgage, you shouldn’t OWN a home.

 

It is in the best interest of our economy to consider a home as a place to live, not as a "quick-fix" investment to flip.  While the first bubble is not yet behind us, we have to take measures to insure a second bubble is not lurking ahead of us.

 

So... “Is it a bad thing that home prices continue to slide?”  I think not.  Homes need to be affordable, but within a more strict and practical lending guideline.  Owning a home is the reward for hard work and adhering to a reasonable family budget.

 

 

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Rainer
104,986
Craig Richardson
National Realty - McLean, VA

Kent, great info, thanks for the post.  I too believe we haven't seen the bottom in some areas while others, like ours, have seemed to have found bottom.

Jan 02, 2010 06:21 AM #1
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Karen Kruschka
RE/MAX Executives - Woodbridge, VA
- "My Experience Isn't Expensive - It's PRICELESS"

Kent  We have not seen the bottom here in Prince William County - too many forclosures

Jan 02, 2010 06:23 AM #2
Rainmaker
205,105
Kent Anderson
Coldwell Banker Realty-Schweitzer Mountain, Sandpoint, Idaho - Sandpoint, ID
from Schweitzer to the Lake

Hi Craig - 2010 will be interesting.  Prognosticators run the gamut from doom & gloomers to Polly Annas.  Thanks for stopping by!

Hi Karen - I think you're in good company in VA.  It will be quite a ride.

Jan 02, 2010 06:31 AM #3
Rainmaker
430,281
Ellen Crawford
Crye-Leike REALTORS® - Alpharetta, GA
Alpharetta Real Estate Agents & Alpharetta REALTOR

That is why they call it "Stimulus!"  It will help some areas like the DC area which is the seat of government, power, and influence...and most places across the country are not doing nearly as well.

Jan 02, 2010 07:32 AM #4
Rainmaker
645,667
Sun City Grand Homes Surprise AZ Real Estate Leolinda Bowers Designated Broker Leolinda Realty
Leolinda Realty - Surprise, AZ
Sun City Grand in Surprise Arizona

We will probably see the market stabilize after jobs are created for the 10%+ of unemployed Americans.  Happy New Year!

Jan 02, 2010 08:51 AM #5
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Andrea Swiedler
Berkshire Hathaway HomeServices New England Properties - New Milford, CT
Realtor, Southern Litchfield County CT

Kent, I really respect your honesty here. I think my area is like yours, we have not seen the end of this yet. But it was and is necessary. In my very humble opinion, many sellers still do not comprehend the severity of the situation. It is still not happening to them. And with so few buyers out there they need to grasp it. They have stiff competition with foreclosures out there.

Best advice? If you don't have to sell don't, if you can afford to make that mortgage payment then do so, make the payments and sit on the house.

I remember when a friend lost much of her 401K almost overnight. Her attitude mystified me a bit, and I asked her to explain to me why she wasn't moaning and groaning. Her response was.... it was not real money anyway. It was fleeting, it was on paper only in her eyes, she had never really had it anyway. Sometimes I think that if people had that attitude about the falling prices of homes, the inflated prices were never real in the first place, it was fleeting, momentary, like holding a million dollars cash in your hand that isn't yours anyway. But then there are those that clearly overpaid, which is a shame, I don't know what to do for them unless they can still afford the payments. Then there are those who are over-mortgaged simply because they refinanced to get cash because of the lure of money, the lure of needing more things...

What a tangled web we weave...

Jan 02, 2010 01:19 PM #6
Rainmaker
205,105
Kent Anderson
Coldwell Banker Realty-Schweitzer Mountain, Sandpoint, Idaho - Sandpoint, ID
from Schweitzer to the Lake

Hi Ellen - Yep..."STIMULUS" does NOT equate to "CORRECTION".  I like the word "EDUCATE"....maybe our government should push this concept.  Thanks for stopping by!

Jan 02, 2010 02:31 PM #7
Rainmaker
205,105
Kent Anderson
Coldwell Banker Realty-Schweitzer Mountain, Sandpoint, Idaho - Sandpoint, ID
from Schweitzer to the Lake

Hi Leolinda - I agree!  It may take awhile, unfortunately.  Happy New Year to you!

Hey Andrea - What a great comment.  SPOT ON!  Thanks for giving your response so much thought and... great story/metaphor about the housing plight.  Have a great 2010!

Jan 02, 2010 02:36 PM #8
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Janna Scharf
Keller Williams Realty Coeur d'Alene - Coeur d'Alene, ID
Coeur d'Alene Idaho Real Estate Expert

Kent, I agree with you.  Here we had such a huge run up of prices that the correction is very traumatic, but necessary.  And yes, the second wave is coming.  Better to be realistic, and informed, so as to make the best real estate decisions going forward. 

Jan 03, 2010 04:13 PM #9
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Rainmaker
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Kent Anderson

from Schweitzer to the Lake
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