US Housing Market – Drop in prices

US Housing Market Crisis

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This guest-post is by Jeff Miller. He is an Economist by training, a tech geek by inclination, and an IT Manager and a Real Estate Investor by experience. Jeff also knows a number of people who are smarter and better connected than he is and he hopes to share what he has learnt with you in a series of articles that will complement his somewhat lengthy comment to my post Black Money Saves Our Financial Sector.

As I mentioned in US Housing Market Crisis caused by Mortgage Backed Securities, the recasting of the minimum payment loans caused a lot of what we are seeing. Looking back on those loans will give us a clue as to what is going to happen in the housing market.

The minimum payment loans started being mass marketed in 2004. At that time, many of those loans were set to recast after a set interval. There were two intervals, 3 year and 5 year. The 3 year recasts hit in 2007. The 5 year recasts will hit in 2009. So, we know what will be coming in 2009. I don’t think that 2009 will hit us as bad as 2007. For one thing, the institutions will already be geared up to handle the loans (loss mitigation departments, REO departments, etc.). Also, the public will be use to it and is less likely to panic (unless the new media succeeds in its “the sky is falling” reporting).

I expect that the rest of the 2008 market will be pretty stable with a trend toward a slow, steady drop in prices (especially in California) followed by a slightly steeper drop in prices beginning in 2009. I think that prices will generally bottom out in late 2010 to mid 2011. After that point, I’m unclear as to what housing prices will do. My gut instinct is that they will start a slow rise. However, politics, new media and group psychology can all affect that outcome.

In the previous paragraph, I singled out California because, as is often the case, California reacted differently to the value drop. In this case, Californians refused to believe that the price was dropping and were still trying to get the old, higher price for their houses. You often heard “I’m waiting for the right buyer” or similar statements. It took a long time for prices to start falling even though the values were already going down. However, the laws of supply and demand could not be held off forever. As it is, I believe that prices are still lagging value. So expect prices to continue to drop in California after everyones else has flattened out.

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Author: Austin Comments: 0 comments Date: 24 Apr 2008
Categories: Real Estate Tags: , , , , ,
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