How much lower will home prices go?

I know it's specific by area but prices in our area are about the same they were in 2000. Will they go lower?
  • June 09 2011 - Truckee
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Answers (4)

Overall Housing Market Short Term 1-2 years.  No surprise that my general view of the overall housing market is not good.  With Supplies up and demand down (via credit/jobs/saving), pricing has followed suit and may continue throughout the rest of 2011/12.  The very low interest rate environment that, in a normal market, would create inflation for housing has not yet placed a floor in the housing market.  The tax credit last year pulled purchases forward and has not increased new demand.  The 10yr note rate has remained low, but has seen some signs of increasing; causing some upward pressure on the 30yr fixed mortgage rates.  Once the Fed stops purchasing Treasuries (QE2 to end in June) the pressure on the 10yr may increase and we could see mortgage rates start to rise.  This should continue to put downward pressure on housing prices for the short term.  Banks are still dealing with a flood of properties in foreclosure and in getting those properties off of their balance sheets and into a market that is over supplied.  In my opinion the short term housing market does not appear healthy. 

Overall Housing Market Long Term 3-5years.  The current U.S. economy seems to be less bad (for lack of a better word).  Longer term threats, in my view, are a quick rise in U.S. Treasury bond interest rates caused by a lack of demand for US credit (Bonds).  And/or Inflation outside of the core rate. (Gas, food, close, etc).  Both could happen and might have a continued depression effect on the housing market.  But, if we are able to maintain the current upward/sideway direction of the underlying economy (without new stimulus) we should see housing bottom, flatten, and start turning over the next 3 – 5yrs.  I do not expect to see a return to the appreciation we had over the years 1995 – 2006, but a more normalized 3 – 5% inline with overall inflation.  Also, over the next 3 – 5yrs we should see banks stem the flood of foreclosures because, by that time, the bank should have worked through the "Easy Money" loans that lead to the (hyper) inflation in housing prices.  And, because of more stringent loan restrictions, at some point foreclosures should normalize.  Assuming that we do not see a huge new wave of residential building, (This would be unlikely w/out a new large pool of demand), supplies should also normalize and price stability should return to the housing market.  In my opinion the longer term housing market should correct itself in the course of the next 3 to 5years.   We shall see.
  • June 10 2011
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Bottom line...buy now. Get a 30 year fixed rate mortgage while you still can.  If you wait, you'll get less house for the money.
  • June 10 2011
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Profile picture for Mills Realty
Dan's response is right on.  There are so many more factors that would lend themselves to a decrease in value that we would be very fortunate to be stable for the next few years.
  • June 10 2011
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Profile picture for the_country_hick
I expect so. Prices are still high in most of the country from a historical perspective. Even if your area has prices that are back to the 100 year average inflation adjusted price simple bubble dynamics could easily drive prices even lower for awhile. It is just how bubbles live and die.

There is the unemployment question, tighter lending standards, lots of people without the needed credit score and down payment, and high months of inventory. Do not forget about fewer sales per time frame now compared to the past. Fewer buyers with more houses for sale cause lower prices.

Look at low interest rates. When they disappear house prices will be forced much lower. Just a 2% increase from 5% to 7% will reduce buying power by 23.7%. That would turn your 5% $200k mortgage payment into a 7% $153k mortgage payment but your wallet feels the same withdrawal. Interest rates can not stay low forever. Once they do rise you can see the effect.

A 30 year $100,000 mortgage costs $491.94 a month at 4.25%.
A 30 year  $80,000 mortgage costs $492.57 a month at 6.25%
A 30 year  $69,000 mortgage costs $494.32 a month at 7.75%

My $1,000 a month payment can buy a
$200,000 mortgage at 4.25% paying $983.88 monthly or
$110,000 mortgage at 10%    paying $965.33 monthly or
$_47,000 mortgage at 25%    paying $979.75 monthly

We could be facing hyperinflation. If we are the 25% could even happen. Look at the late 70's early 80's inflation. Mortgages were around 20% then.

The numbers above are real. The possibility of interest rates being at any of those levels is hypothetical but potentially real. Remember, just because interest rates go up by 2% does not mean your income will go up by 24%. Probably your income will remain about the same.

Look at the links below. Each one tells a story about the housing market and why it should be headed one way or another.

This one shows what the housing bubble looked like and how bubbles form and the die. We still have a long way to go down .
Do you know what the housing bubble really looks like? ... - Zillow Real Estate Advice

No Respite From Housing Recession in First Quarter | Zillow Real Estate Research

Do not believe the NAR propaganda.
Cheapest Homes in 40 Years? Not Even Close… | The Big Picture

The Fallacy of a Pain-Free Path to a Healthy Housing Market - Economic Letter, December 2010 - FRB Dallas <-- the federal reserve

Homebuying unlikely to get easier in 2011 - chicagotribune.com

Peter Schiff: Here's Why Home Prices Have To Decline At Least 20% And Probably More

Foreclosure Homes Account for 25 Percent of all Q3 2010 Residential Sales

This shows some things that could keep house prices falling for a lot longer.
10 Key Charts to See Before You Buy or Sell Your Home « Real Estate Prices and Mortgages on HousingStory.net

The famous mortgage reset chart could be very optimistic. Look inside to see why the mortgage crisis could last a lot longer than expected.
Healdsburg Housing Bubble: Reset Chart from Credit Suisse has a Major Error <--- 2012 is the earliest the mortgage reset could stop. It takes over a year for most foreclosures to happen. We have a 3 year inventory now. Add it up. That is about 2016.
  • June 09 2011
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