That means 1/4 of the markets will be stable, or gain.
Our property gained 25% during 2005 alone. Why should I care about a 10% loss?
Lets see how that math works out for a $250,000 home...
Buy a home for $250,000
It goes up 25% or $62,500
Home is worth $312,250
Home goes down 10% or $31,250
Home is now worth $281,250
Owner has lost 50% of his paper appreciation.
Now lets look at the folks in trouble, which you are not...
Assume 0% down payment on an ARM.
Total equity in home is $31,250 in a home worth $281,250.
Equity is 11%. Can that person refinance?
Now to the reality at hand. Most homes in the Sacramento region, where I want to buy, are down to below year 2004 price levels. Many are off 25% or even 30% off peak. I don’t even need to re-run the math above to show that people who bought after 2004 are in trouble and the people with an ARM or Jumbo are in BIG trouble.
I won’t even get into all the people in your situtation who were foolish enough to pay 0% down and then tap that $62,500 paper appreciation for a home equity loan to spend. Because that would put them $31,250 upside down with NO chance to refinance while their ARM resest or the Jumbo comes due... BIG problem for them.
You may be in good shape losing 50% of your paper gain, but there are lots of people in bad shape because they won’t be able to refinance and will lose their home. BIG problem. If that happens to enough people in your neighborhood, look for your home to go down MORE than 10%, due to their foreclosure liquidations dragging down your home prices.
This may or may not be the case in your neighborhood. I don’t pretend to know your personal situation. I am just pointing out where this 10% drop in home prices can lead and that doesn’t even account for the fact that in places like California, Nevada and Florida, many homes have plunged more than 30% in value since their peak. And that means you had ot have AT LEAST 40% appreciation to break even on a 30% drop in value.