Winterspeak discusses, “how to undo the bubble?”
I think one inevitable requirement of unwinding the housing bubble market is that housing prices have to come down to fall in line with historic trends. In some areas this means very dramatic decreases — maybe 40%+ in real terms? I’m not sure what a “deflated housing bubble” would look like if it did not bring prices back to historic norms. We are not going to see price declines of this magnitude unless we have very very motivated sellers, which means banks for older properties (which have been foreclosed on), and builders for newer properties. If prices do not fall, then transactions will dry up. I can see the government stepping in and helping owners (and their lenders) but I’d be surprised if builders will be helped that much. This means that areas that have had the most new construction should see the most dramatic price corrections.
That is why this will take a long time. Most people will stay in their houses and refuse to sell because they can’t afford to sell at a price that will move. Thus we will see a slow adjustment, unlike stock prices. Prices will come back into line as more and more sellers have to accept what the market is willing to bear, as people default, and the slow movement of inflation. Meanwhile the residential construction business (which in employment terms has not really corrected due to the filling of existing orders) will have a long tough road, as well as all the industries associated with it and on and on in decreasing effects. With mortgage equity withdrawal collapsing this will probably have a big impact on spending patterns through that mechanism as well. Changing consumption and investment patterns means adjustment. That usually means slower growth and possibly recession. None of this requires the present credit concerns as a catalyst, though that issue is obviously problematic as well.
Wow. Appears I did a good job of buying a house in SoCal at just about the worst possible time.
Well, we sold ours for close to what we were asking, which was what our house appraised at, and got our new house for less then what they were asking. Was probably the best deal, and the best timing for us.
If illegal aliens are a prime employee in the housing market, (no data, just a conjecture,) what does a slowing new housing market do for that problem?
Don,
That is of course to be seen. it could be a long flat spell. it could be that a particular location retains value, or was more reasonable, building restrictions have artificially reduced supply, etc.
Since I just bought a house I am in the same boat. I am not sure we will be that affected for several reasons, but I made it clear to my wife, don’t plan on moving anytime soon, we could easily see a decline, and do not assume any appreciation. If that is the thought process then if the more pessimistic projections do come true you are fine. If not, hope for the best.
Illegal aliens? haven’t thought about it enough to say anything intelligent, which is tough enough for me already.
Lance,
My wife and I have 100 acres that have been in my family for over 100 years. We planned to build on it, but prior to building bought a house.
When we bought, I pushed for one of those stupid 3 year fixed loans. My goal was to push us towards building, so that we didn’t get too lazy sitting in the new house. We refinanced to a fixed 30, so we are OK, but building on our 100 acres has hit several snags. One is the market, another is an endangered critter that happens to live on our 100 acres.
I have no doubt whatsoever that ” building restrictions have artificially reduced supply”. However, from a market perspective I’m not sure that it is really artificial. I see it as a real reduction in supply, just one driven by more or less arbitrary government decisions. The Endangered Species Act (with help from wacky court decisions and the general trend of Big Government and radical environmentalism) which Nixon and the Democrats passed when I was a child really came back to hit me hard.
Don,
I think you have a point, and for that reason I suspect prices on the west coast will not reset to what they would be in a less regulated environment. I plan a large post which will address that and other topics in the near future.
Still, I think for most of the coast that higher level was passed long ago, which doesn;t mean in your particular area, just the region. Real Estate always has a strong local valuation factor. besides, if one wants a house, one has to make the best decision one can, so you, and I, are spitballing as best we can with our local market. Hopefully it works out for us, but I am less than sanguine about the nation as a whole, and the west coast specifically.