Housing Meltdown
Why home prices could drop 25% more on average before the market finally hits bottom
NEWSWEEK-As Washington policymakers struggle to keep the U.S. out of recession, the swirling confusion over the housing market is making their job a lot tougher. Will American consumers keep shopping or be forced to pull back? Will banks lend freely or be hamstrung by mortgage defaults? What are the best policy options right now? Those and other important questions simply can’t be answered without a good idea of whether home prices will rise, flatten out, or keep dropping.
Some experts have begun to suggest that a bottom is in sight. Pali Research analyst Stephen East wrote in a research note to his firm’s clients on Jan. 25 that “the sun is not shining very brightly, but at least the worst of the storm has likely passed.” With optimism budding, Standard & Poor’s beaten-down index of homebuilder stocks soared 49% from Jan. 15 through Jan. 29.
There a couple of problems this drop is creating. One is lost tax revenues as property tax revenues are falling in some places and if the citizens make them reassess their homes to lower values, that problem will greatly increase causing cities and state governments to really suffer a budget problem.
Also, some people who maxed out home value and spent the money from home equity loans are simply mailing the keys in and moving to rental property.
This is also affecting spending not just by home owners but by cities and states as the budget crunch is hitting them. California is considering ending dental services to the poor, cutting education and releasing 30,000 prisoners in an effort to cut spending.
I think these are the things that are creating the panic in the Fed and Congress. They see what is happening already to cities and states and know they are going to be hit too.
I agree
Jan,
Local govts. stood by while the Real Estate folks artificially pumped up home prices. The agents made more money and the towns got more taxes.
I personally watched while my home, which in 2000 had a fair market value of about $225K or so go as high as $450K. I was almost tempted to cash in but I suspected it wasn’t true. Thankfully, I exercised some common sense.
It is all part of the out of control spending that govt. at all levels engages in to further their socialist goals. If they are suffering now, too bad. As you have pointed out on other occassions, times are going to have to become much harder before any kind of sanity returns our nation’s financial situation.
Don’t forget, Jan, about the possible downgrading of bond insurers which will drive up the cost of issuing bonds for states and municipalities.
Not a good time to be a city/state budget director.
I was just listening to a finance show pointing that out. They said many investors fled to high yield investments like muni-bonds in the belief they were “safe.” The host was telling people that had 60% or more exposure to these to use the current “bear market rally,” to get out of much of that.
Here is what California is facing according to a financial email alert.
quote:
California reported a whopping 31,676 foreclosures in the last three months of 2007. That’s more than twice the state’s previous record that was set in 1996 and marked a 421.2 percent increase from a year earlier.
According to Reuters, the Q4 default notices represented the highest number in more than 15 years.
Experts point to declining home values as the cause for the surge in foreclosures in the state. Declining home values led many Californians to simply abandon their homes in the last three months of 2007. Many faced paying on houses worth less than the balance on the mortgage.
Source: Money Newshttp://moneynews.newsmax.com/
The article usually shows up on the site by the next day.
Anyway, this is part of the problem with California’s loss of property tax revenues as nobody is paying the taxes knowing the state doesn’t take the property until after a lengthy process. Also, this has killed income for real estate agents, title companies, furniture stores, etc.
That is why states are asking Congress to “forget about the deficit, bail us out with infrastructure projects.” That is why I think Congress will authorize hundreds of billions for NAFTA highway routes that are already authorized routes under NAFTA.
I-35, I-5, Hwy 19 (Az, Nevada) and others in the four corridors. That will create high paying jobs for years in the majority of states as the major routes go all the way from Mexico to Canada.
But, will all that get the consumer spending soon enough to avoid a recession? Probably not, thus the checks to individuals. Will that work? Probably not but, when you are desperate you try to “create hope and optimism,” that actually do more than the money to avoid a recession.
http://moneynews.newsmax.com/
Should be nobody losing their home is paying property taxes and some properties vandalized, or burnt, are causing even the banks to walk away from them and leave them to the state.