Home Prices Headed Down

Home Prices Headed Down


The situation is really sad and infuriating at the same time. I think we can all agree that artificially cheap and easy money (i.e. excessive lending) is what got us into this housing bubble (really a debt/lending bubble) mess to begin with. Therefore, it is incredibly foolish and irresponsible that the federal government (and some states such as CA) is trying to "solve" the problem by artificially propping up demand for homes by pushing the banks to lend more, bailing out banks, guaranteeing the trillions (yes TRILLIONS) in losses that will ultimately come from Fannie Mae and Freddie Mac, artificially keeping interest rates low by buying over $1.25 trillion in mortgage securities in order to encourage more borrowing, expanding FHA lending dramatically, giving out $8,000 tax credits to first time home buyers, etc. Homes are still overpriced when compared to incomes (see my personal research below). Keeping homes overpriced by artificially allowing more home buyers into the market and encouraging other home buyers to purchase more expensive homes (because the "money is so cheap") is completely irresponsible. Why should Americans be happy about being forced to overpay for homes (due to having to compete with home buyers who should not be home buyers, but only are do to the "government housing stimulus" described above) - that only leaves less money available for saving, investment, non-debt spending, etc. In short, it makes it harder and harder to get by on their current incomes. The American Dream is being killed by excessively high home prices and our all knowing and caring government is causing this!. Let me say this clearly: YOU CANNOT SOLVE A PROBLEM CAUSED BY TOO MUCH DEBT BY TAKING ON MORE DEBT. It is impossible. Instead, the government should just let home prices fall to where they should naturally be given the current economic situation (i.e. a lot lower than they are right now). The housing market is headed down as soon as the foolish government market propping ends.

There is 0% chance that any market is actually "stabilizing" since that implies an actual free market. "Temporarily Artificially Propped" is a more accurate description of our current real estate market. See my blog post from November 2009 (I correctly detailed the current state of the real estate market and accurately predicted what would happen after the tax credit and other government market propping expired): Our Phony Real Estate Market. Also, see my personal research below.

There is no way that home prices have reached a bottom. I analyzed the data in the NAR Home Affordability Index (HAI) from 1/1989 through 6/2010 and found that the Median of the Ratio of Median Home Price to Family Income is 2.92 and the Average of the Ratio of Median Home Price to Family Income is 3.07. Over this same period, the lowest reading occurred in 12/1990 at 2.654. Therefore, it is safe to say that from an historical perspective the typical price of a median home should be about 3 times the median family income. The 6/2010 reading was over 3 at 3.045 (i.e. over 4% higher than the historical median and about the same as the historical average). The problem is that we are not in a “typical” economic environment – we have record foreclosures that seem to persist and 10% unemployment. Given that the lowest reading of 2.654 occurred in 12/1990 and that our current economic conditions are far worse than 12/1990, it is logical to conclude that the Median Home Price to Family Income Ratio should be below 2.654. If the ratio declines to 2.5, home prices will decline by nearly 22%. If the ratio declines to 2.5 and family incomes decline by 5%, home prices will decline by over 28%. Given that personal incomes are declining and that a 2.5 ratio is probably a bit optimistic, I believe it is very feasible that home prices will decline by an additional 30%. As a result, there will be more short sales and foreclosures. See the graph below for a representation of the Ratio of Median Home Price to Family Income Over Time and how it compares to the Average and Median of that same Ratio.




Short Sale and Foreclosure Help and Assistance for Homeowners and Property Owners in Nashville TN and Middle TN. If you are a Nashville Tennessee, Franklin Tennessee, Brentwood Tennessee, Nolensville Tennessee, Spring Hill Tennessee, Murfreesboro Tennessee, Smyrna Tennessee, La Vergne Tennessee, or Middle Tennessee homeowner, property owner, condo owner, real estate investor, home builder or real estate developer who cannot pay your mortgage payments (due to losing your job, having your income reduced, illness, health problems, adverse business conditions, slow sales, loss of investment property tenants, vacancy issues, lack of funds to complete the project, feuding business partners, etc.), know that you will not be able to pay your mortgage, have defaulted on your mortgage, are already in foreclosure, or owe more than your home is worth, please contact me to discuss your options including a loan modification and a short sale (a real estate short sale occurs when the sale proceeds are not sufficient to pay off all the mortgages and liens on the property/home). I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR, Expert and Real Estate Investor. I primarily help sellers (homeowners, property owners, condo owners, owners of high end homes and properties (estate homes, luxury homes and executive homes), real estate investors, home builders and real estate developers) of distressed real estate, short sales, pre-foreclosures, foreclosures, investment properties, failed new construction projects and struggling commercial real estate developments located in Middle Tennessee (Rutherford County TN, Williamson County TN, Davidson County TN, Robertson County TN, Maury County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN, Belle Meade TN, Nolensville TN, Spring Hill TN, Gallatin TN, Springfield TN and Mt. Juliet TN). If you do need to short sell your home or property, or you need a quick sale due to being in foreclosure, you can request short sale and foreclosure help and assistance on my website at Get Short Sale and Foreclosure Help and Assistance from a Nashville Tennessee and Middle Tennessee Short Sale and Foreclosure REALTOR, Real Estate Expert and Real Estate Investor.

Homeowners Spending Their Mortgage Payments?

According to this Diana Olick article on CNBC.com, Mortgage Defaults May Be Driving Consumer Spending, recent studies show that "Americans are now far more likely to pay their other bills first before their mortgage (which is a big turnaround historically speaking)." As a result, the thought is that many of the nearly 7.4 million homeowners who are not paying their mortgage payments (defined as the total number of delinquent first mortgages plus REO properties - see the most recent mortgage performance data current as of March 31, 2010 in the LPS Mortgage Monitor: April 2010 Mortgage Performance Observations published by Lender Processing Services, a provider of mortgage processing services, settlement services, mortgage performance analytics and default solutions) may actually be spending money that would normally go toward making the monthly mortgage payment on consumer goods and services (i.e. food, clothing, car payments, medical expenses, entertainment, travel, etc.). The article mentions that Paul Jackson, publisher of Housingwire.com, wrote an article, For Consumers, Time to Shop (Until the Mortgage Drops), in which "he describes a case study of someone who applied for the government's Home Affordable Modification Program. The person had an $1,880.00 monthly mortgage payment on which they'd defaulted, but said person's monthly bank statement showed payments to a tanning salon, nail spa, liquor stores, DirecTV bill with premium charges, and $1,700.00 in retail purchases from The Gap, Old Navy, Home Depot, Sears, etc." Jackson goes on to say "Even if you assume that just half of the current 7.4 million currently delinquent mortgages fit this sort of ’spending profile’ (that is, they are spending their mortgage) and you assume a $1,000 median monthly mortgage payment for most U.S. homeowners — you get a $3.7 billion boost per month to consumer spending. It’s certainly enough spending to matter in the overall scheme of things." I find this truly scary, but I do believe that this is happening. In fact, I think this behavioral trend will become even more common as housing prices continue decline leaving more and more homeowners (I use that term loosely since until you have more equity than you have debt on your home the bank "owns" more of the home than you do) in position where they owe more than their homes are worth (i.e. underwater or negative equity). Frankly, I think this behavior is the result of a rather logical decision making process. If you were an underwater homeowner who owned a home and you had a choice between paying your mortgage (when you know you will never see that money again) and buying goods and services that you can enjoy now, what would you do? This is all a matter of economics and mathematics and in that vane paying for a declining asset (i.e. the home) makes no sense. As a result of this you can bet that foreclosures and short sales will continue to occur at high levels for the next several years.

Short Sale and Foreclosure Help and Assistance for Homeowners and Property Owners in Nashville TN and Middle TN. If you are a Nashville Tennessee, Franklin Tennessee, Brentwood Tennessee, Nolensville Tennessee, Spring Hill Tennessee, Murfreesboro Tennessee, Smyrna Tennessee, La Vergne Tennessee, or Middle Tennessee homeowner, property owner, condo owner, real estate investor, home builder or real estate developer who cannot pay your mortgage payments (due to losing your job, having your income reduced, illness, health problems, adverse business conditions, slow sales, loss of investment property tenants, vacancy issues, lack of funds to complete the project, feuding business partners, etc.), know that you will not be able to pay your mortgage, have defaulted on your mortgage, are already in foreclosure, or owe more than your home is worth, please contact me to discuss your options including a loan modification and a short sale (a real estate short sale occurs when the sale proceeds are not sufficient to pay off all the mortgages and liens on the property/home). I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR and Expert. I primarily help sellers (homeowners, property owners, condo owners, owners of high end homes and properties (estate homes, luxury homes and executive homes), real estate investors, home builders and real estate developers) of distressed real estate, short sales, pre-foreclosures, foreclosures, investment properties, failed new construction projects and struggling commercial real estate developments located in Middle Tennessee (Rutherford County TN, Williamson County TN, Davidson County TN, Robertson County TN, Maury County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN, Belle Meade TN, Nolensville TN, Spring Hill TN, Gallatin TN, Springfield TN and Mt. Juliet TN).  If you do need to short sell your home or property, or you need a quick sale due to being in foreclosure, you can request short sale and foreclosure help and assistance on my website at Get Short Sale and Foreclosure Help and Assistance from a Nashville Tennessee and Middle Tennessee Short Sale and Foreclosure REALTOR, Real Estate Expert and Real Estate Investor.