All of those factors are gone. Therefore prices will come down. Because there will not be a selling frenzy to drive the decline, that decline will be slow but will nevertheless be significant. I would not be surprised to see a 25-30% decline between the peak of 2005 and the bottom of the market.
But who really will be hurt by the decline? Those who have owned their homes since 2002 will be fine. Those who purchased their first home with little or no money down after that will be fine from a financial perspective. Those who refinanced their homes to buy products or services they otherwise could not afford presumably enjoyed those products or services. Even flippers will do ok unless they started flipping in 2005 with real down payments or got greedy and tried to flip multiple homes at the same time.
The only people who will be hurt by this decline in housing prices will be (i) those who purchased their first home with a substantial down payment after 2002 and are forced to sell before prices recover, (ii) real estate agents and loan brokers, many of whom will be inquiring whether you want foam or no foam in a couple of years, and (iii) investors and funds who hold securitized mortgage debt and who will learn that their contractual rights to return their instruments if the underlying mortgages default are ephemeral (in other words, they will learn that investing still involves risk).
Rescuing a very small number of home owners, allowing mortgage brokers to avoid becoming barristas, and bailing out billionaire hedge fund managers who mispriced risk does not justify endangering Fannie and Freddie a further trashing of our currency.
I agree. We purchased our home in 1985 for $32,500 at 12%. We were able to refinance down to 5.67% and the house was worth $150,000. It’s come down to about $145,000, but that’s still over 100 grand more than we originally paid.
We didn’t refinance for the full value, just took some of the equity out, but all in all, in great shape. We’d have to drop another 45 grand to start worrying. Even in Michigan, that’s not likely.
I won’t be a barrista anytime soon, and even if I did leave the biz, with a college degree and 7 years+ experience in sales and finance I think I could do better than Starbucks.
;-)