WHEN WILL HOME VALUES STOP DECREASING ???

By
Real Estate Agent with Keller Williams Realty New Orleans

When will home values stop DECREASING?

Economists at the semi-annual National Association of Home Builders forecast conference are saying not soon, but that the end is in sight. The consensus says that home prices will bottom out as early as the middle of next year.

The latest conference was downbeat, but with a glimmer of hope-many of the economists seemed optimistic that the government's bailout plan, which includes buying toxic mortgage debt, will lead to housing's recovery. More affordable prices, pent-up demand, incentives on new homes, fewer housing starts and expected declines in interest rates for fixed-rate mortgages also should help ease the crisis.

Although economist agree that we are in a recession-despite lack of official government confirmation-and have been for many months, several characterized the current financial turmoil as an overreaction, given the country's narrowing trade gap and strengthening the dollar.

But even if the stock market bounces back, don't expect housing to rally right away. The forecasters pointed out numerous factors that are likely to drag out housing's convalescence: Unemployment is currently at 6.1%, compared with 4.4% last year, and it is projected by some to reach 8% next year. Home prices have already tumbled 20% from their peak three years ago, and will probably sink another 10% before stabilizing. Some 12 million homeowners currently owe more on their mortgages than the houses are worth, meaning more foreclosures and a drop in the already-weakening homeownership rate. And bloated supply will continue to outpace demand in most parts of the country for another year or two.

As terrible as this is for people who have lost or will lose their homes, overall, this painful contraction is necessary-a counterbalance to the era of easy money and over-leveraging. When it is over, homes won't be worth as much as they were before, but their prices will be more in line with people's incomes. Loans won't be given to everyone with a pulse, but they will be available to people with good credit. The market will be back to normal.

Perhaps by then we'll have learned some lessons: Just because someone is offering to loan you money doesn't mean you should take it. Don't assume lenders and regulators will look after your interests. Before you sign a contract, read the fine print. Since neither job security nor rising equity is guaranteed, stick with fixed-rate loans. Don't live beyond your means. Pay your bills on time, and keep enough cash on hand to pay for at least six months of expenses. Think of your house primarily as shelter, not a cash machine.

And finally, don't despair. Remember that markets are cyclical; the bigger the binge, the worse the hangover. We'll have to suffer this one for months or even years to come. But if we learn not to over-indulge, we'll all wind up healthier in the long run.

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Rainer
44,199
Kevin McGourty
Realty ONE Group - Phoenix, AZ

Well said. Can we vote you into office? I think we are in denial that our economic system is cyclical. Once in a while you have to get sick in order to stay healthy.

Dec 01, 2008 04:44 AM #1
Rainmaker
456,053
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Alicia, some good points, but I'm not sure I accept the Homebuilder's optimistic assessment of how soon things may turn-around. According to the National Bureau of Economic Research, we are in a recession that began in December 2007. Based upon what we've seen in the market, I think most would agree.

What most aren't aware of is the depth of the problem. That's why the government reaction has been so strong. We haven't seen conditions like this in decades:

November manufacturing numbers at the lowest level in almost 30 years.

Jobless claims are at a 16 year high (recessionary levels).

New construction at lowest level since 1959.

3.5 million homeowners behind on their mortgages.

The list is longer, but we can rebound with strength. It's up to our leaders, and we must prod them for LEADERSHIP.

 

 

 

Dec 01, 2008 04:52 AM #2
Rainer
23,865
Steve Richman
Genworth Financial - Raleigh, NC

FHFA just released the new quarterly Home Price index - www.ofheo.gov.  Does it paint a pretty picture? No.  Will it get better? Yes.  When?  When everyone decides that it has hit rock bottom.  There is pent up demand out there and people are just waiting until we are bottomed out before they jump back in.  Once everyone decides we are bottomed out, they will jump back in. Thanks for your post.

 

Dec 01, 2008 04:52 AM #3
Rainer
126,644
Brian Kantor
Fip Realty - Aventura, FL

some interesting point well written

Dec 01, 2008 05:28 AM #4
Rainer
62,295
Alix Pinzon
Open Mortgage, LLC NMLS # 2975 - Downey, CA
(562)743-6086

If HVCC (Home Valuation Code of Conduct) is implemented on May 1st, 2009 as scheduled, the housing recovery will be long and painful.  This will require the lenders, banks, mortage companies, to order appraisals through a third party, aka AMC (Appraisal Mangement Company).  Without the usual pressures for higher values, there will not be any.  The last time I checked, appraisals were based on past sales.  Technically the only thing that can raise values is cash, and faulty appraisals.  Few people have cash these days, and with HVCC, I don't know of any appraiser who's going to push values when they don't have to.  If this is boring you, just respond by letting me know how life is in New Orleans, I'd like to know.

Feb 03, 2009 08:11 AM #5
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Rainmaker
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Alicia Lagarde-Craig

Realtor, New Orleans, LA
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