We are at the endgame for housing. Until recently, our national motto has been “in real estate we trust.” Just last week, the Census Bureau reported that median home prices after inflation rose 32 percent from 2000 to 2005. In some places, the gains were huge: 127 percent in San Diego, 110 percent in Los Angeles and 79 percent in New York. But real estate—which has acted as a national piggy bank, with homeowners borrowing and spending against rising house prices—no longer looks so trustworthy. On this, more than falling oil prices or a record Dow, hangs the economy’s immediate fate.
[. . .] Construction workers, real estate agents and mortgage bankers will lose jobs. Consumer spending (computers, cars, vacations) will also suffer, as the borrowing and buying against rising real-estate values subsides. Indeed, the end of the cheap credit that fed the boom means that many borrowers will face higher monthly payments.
The Reagans are experiencing the wrenching consequences of being home sellers at the wrong time. They’ve had several buyers fall through, and have been forced to pull out from buying their own new dream home. They’ve packed and unpacked, explained to their children why they had to call off a move, and spent many a sleepless night talking about money.
[. . .] Though in a different price zone, Stephen and Dianne Greenstein can relate to Reagan’s deflated spirits. The couple’s four-story waterfront home, on Nahant’s craggy coast, has been on the market for nearly a year. It boasts sweeping views of the Atlantic, several seaside decks, and three fireplaces. But for all of its amenities, the three-bedroom contemporary home has yet to sell — despite a drop of $326,000 in the asking price. [ephasis added]
The housing market slump has just begun. The market is far weaker than it feels. The builders are nervous like never before. Most importantly many people have started defaulting on their mortgage loans especially the investors.
Normally a bubble like this takes at least a 50% retracement in price before any bottom is over.
… Here is the problem. The real estate market in US in a 70 year cycle. For seventy years the market went up. Baby boomers caused it to happen. Population demographics is always behind any dramatic move in real estate market. However, the cycle down in real estate markets are normally sharp again based on demographics. Unless massive immigration reform takes place in US, the real estate market is destined to accelerate downwards for at least thirty years.
Sure, the Orange County housing market is cooling down, but few would ever have thought it would come to this: a free vacation as an incentive for buying a home.
Yep, that’s right, get a feww vacatin. You’ll need it because you’re paying $160,000 for a house that will be “worth” $100,000 next year — but you will still OWE $160,000!