Posted on 03/05/2008 4:27:17 AM PST by Kaslin
"Decline in Home Prices Accelerates" — Page One headline, The Wall Street Journal, Feb. 27
Gloom. Doom. Calamity. Home prices are tumbling. We're bombarded by somber reports. But wait. This is actually good news, because lower home prices are the only real solution to the housing collapse.
The sooner prices fall, the better. The longer the adjustment takes, the longer the housing slump (weak sales, low construction, high numbers of unsold homes) will last.
It's elementary economics. Pretend that houses are apples. We have 1,000 apples, priced at $1 each. They don't sell. We can either keep the price at $1 and watch the apples rot. Or we can cut the price until people buy. Housing is no different.
Even many economists who should know better describe the present situation as an oversupply of unsold homes. True, there is about 10 months' supply of existing homes as opposed to four a few years ago. But the real problem is insufficient demand.
There aren't more homes than there are Americans who want homes; that would be a true surplus. There's so much supply because many prospective customers can't buy at today's prices.
By definition, the "housing bubble" meant that home prices got too high. Easy credit, lax lending standards and panic-buying raised them to foolish levels. Weak borrowers got loans. People with good credit borrowed too much. Speculators joined in.
(Excerpt) Read more at ibdeditorials.com ...
No matter how much lipstick IBD slathers on this pig, it still ain’t gonna turn any tricks on Main Street...
Ping
This time around, ‘this pig’ is in one nasty slaughter house and few are buying the pork.
Gee, wonder how hard that American Dream is to get and really pay for now? That means that households earning less than $87,200 can't afford the average home.
Wonder how long the surplus units are going to sit vacant that were overbuilt?
There was another article posted here yesterday about the "collapse" in home prices in California. It's true that the median home value is a lot lower now than it was two years ago, but when I looked at the figures what really jumped out at me was that these homes never should have been worth as much as they were two years ago.
The "collapse" in California is basically a return to the values these homes held back in 2004. They may still decline a lot more, but then that only means the 2004 values were inordinately high, too.
IMHO, the home values of *1995* in California were very overinflated.
It’s a buyers market....shhhhh.....don’t tell anyone or they will call you stupid....
In Bellaire section of Houston the huge mansions there are up in price 13%.
Please. If everybody is overinvested in Real Estate and has no cash, where are the buyers going to come from? We’d love to buy a house right now, but we have to sell ours first.
Check out Luxury home prices in Houston. Multi multi multi millions. http://www.margiekaplanhomes.com/
We have a growing population. That population will require more housing. The main thing standing between a buyer and a seller is price. The seller needs a number great enough to pay off the mortgage and make a downpayment on a new home. The buyer needs a number that is low enough to meet the combined total of his equity and what the bank will lend. Until those numbers line up, the market will not reach equilibrium.
We currently have a situation where banks will not loan as much money as they previously did, and for good reason. Many banks were required by federal mandate to make home loans more affordable so that many minorities would qualify, who normally wouldn't. They had to offer them to everyone in order to be "fair." That cohort was unable to make their mortgage payments, as the banks were correct to assume before the new laws made them make the loans.
As with most sectors of the free market, we now have a "sale" on homes, i.e. - prices have to come down to clear the inventory from the shelves. Pretty simple stuff really.
You are right. My sister bought a brand new 2500 sq ft house in Victorville Ca about 16 years ago. $103K. Five bedroom, four bath, living and dining room, den and breakfast room, etc. Nice house. It got WAY UP In price a few years ago. Now she is trying to just get $380K. So although the price has gone down lately, it should have never gone up as high as it did a few years ago.
Your assumption is that everyone should own a home. The problem with your argument is that you leave out the very important role of rental housing.
“Gee, wonder how hard that American Dream is to get and really pay for now? That means that households earning less than $87,200 can’t afford the average home”
You win the prize for making the most sense with the fewest words!
Long as the gubmint and “sub-prime” lenders, more commonly known as loan sharks, stay out of it, the free market forces of supply and demand will restore order.
I agree. When the prices fall enough, people will buy.
Then they can buy a below-average house, if they want to own a house. I live in a below-average house, with way more than the average number of occupants. But you know what? It beats the heck out of living in an apartment!
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