When will home prices come down and what will bring them down?

Right off the bat I will say that no one knows for sure. If I could predict every thing I would be rich. But I want to give you some thoughts.

There is an unprecedented run up in home prices over the last four years with as of yet no end in site. As we all know is everything that goes up must come down. Real Estate runs in cycles, many feel we are due for a down turn. However, consider the following:

• Prices have still not returned to the pre-crash point from the big crash. Now admittedly at that time homes were way over priced, but the the up and down price trend over the long haul always goes up. We just came off a huge crash and that recover is still not complete. So we could say what has gone down is not back up yet.

• Home ownership is at an all time low. The economy sucks. When we finally get some economic relief there is still a huge demand for homes.

• People have a lot more equity in their homes than they had before. The move up buyer market is not very robust. In short people are hanging onto mortgages and homes they are more secure about making payments on. People are not taking HELOCs, Second Mortgages, or refinancing to get cash. In short people do not plan on loosing their homes this time around. Buyers are set to weather the storm.

• There are not very many Neg Am Loans, Stated Loans, or other high risk loans on the book. The loans being made are very secure.

• There is a growing level of consumer debt, but this is not secured by home loans.

• Interest rates are at an all time low and being held at an artificially low rate. When interest rates start back up it could put a damper on the housing markets depending on how fast and how high they go up. Higher interest rates mean homes are basically less affordable.

• However, rising Fed Rates may not damage home interest rates or home prices that much for two reasons. The stock market is generally looked at as inflated (and much more inflated than the housing market). A rise in the Fed Rate could burst the stock market bubble. Much of the the stock market money then might very well flow directly into real estate (furthering the demand) and flow into the bond market, helping to keep interest rates down.

• A lot of the fees and regulations on the lending side are a huge burden and anchor on the market. Many of the fees do not even facilitate that market, but end up in the treasury or earmarked for other government projects. There is some push back against this. We will have to see how it goes. But less regulation would help the market. For those that feel the regulation will help us from having another crash I want to point out it was regulation that helped bring about the first crash.

We live in perils times with a growing social and political divide. Our economy is on the ropes in many ways. There is a lot of uncertainty. I still think buying a home is one of the best things a person can do at this time to build a solid economic future for themselves and security. See my post on why you should buy a home now.

Gene Riemenschneider is the Broker and Owner of Home Point Real Estate in Brentwood CA. Serving the East Contra Costa County Communities of Brentwood, Antioch, Oakley, Discovery Bay, Pittsburg, and beyond. For Buying, Selling or Investing call 925-260-4321.