What would happen if mean home prices returned to where they were just 18 months ago? That would be a very small retracement of the last 8 years move. The average family that bought a home in 2004 with a low downpayment would be insolvent. The average middle class household is wiped out on a 30k hit on their house. Could the system handle this. Are we setting up for the worst depression ever? Or would we get through it ok?
Lets say a few planes hit a couple buildings, thousands die, a nation goes to war, stock markets crash worldwide. Could the system handle this. Are we setting up for the worst depression ever? Or would we get through it ok?
Convertible, You've got to be the rudest nonentity I've ever had the displeasure of reading on a website. I'm turning you off. Man you are filled with hate. You are not capable of answering simple questions. All you seem able to do at best, is spew insults. Try putting a few thoughts together that add something here. Even if you're wrong, at least there is some contribution.
I think the sytem can handle this, some of the traders in this market will no doubt get burned, but a family who has bought a house will stick with it for two reasons, they need a place to live(and would have to pay rent otherewise), and the interest expense is still deductible.
low mortgage rates vs. historical levels and creative mortgage products (zero-5% down) has driven this real estate market. when mortgage rates approach 7.0%, this is when home buying will cool after the last big run up in housing prices. as prices stabilize, the first downtick in prices will trigger the fall. those who bought properties as secondary investments (2nd, 3rd homes/condos) will bail and dump to try to capture profits at the current market price. this short term "avalanche" of selling will set housing into a short term yet significant correction as recent, more weaker homebuyers panic and inventory rises. there is no question in my mind that this will happen one day. unfortunately, i don't know when. most people need a place to live so they buy, but imo, more homes today are bought out of speculation than ever. 2nd, 3rd homes as a quick $ flip. but to answer the question, i think the correction will be temporary so all will be weathered out over the next cycle. i fail to see how it would spark a depression as the majority of the middle class would continue to make monthly mortgage payments on a home, as opposed to a trade. from 1985-1988, homes in suburban NYC climbed 50-70% and in the early 90's, crashed back down to 1985 levels. those who bought the highs back then and held until today cos they HAD TO, since it was their HOME, they now have sizeable paper profits. similar events have happened before.
The only validity I can see in the origonal post is the impact low rates have had on demand. And I especially disagree with LIght. This market IS all about demographics: household formation; immigration; lifestyle trends (2nd homes, boomers downsizing etc..). I have been in the real estate market since 1978. First as an agent and now as an appraiser. The current market is a perfect storm of historically low rates, record demand and historically low inventory levels. But I still wonder how much of the froth is due to easy credit/low rates. If it wern't for credit, how much would a $400,000 stater home in CA really be worth? The great unknown is when rates rise. My own feeling is that once they do start to rise, they will do so faster than most people expect. Markets tend to do that. This could cause inventory levels to rise to more normal levels and would likely price some out the market. You will most likley see some price declines in hot markets, but I don't see a large decline across the nation. And besides, real estate has always been a cyclical market. Most people don't realize that though because of the longer holding period. One of the great features of real estate is that is forces you to be long. If you bought a house in CA in late 1980's and sold 10 years later, voila, a nice profit. But during that time you were probably under water for a good bit the time.
I have said this before and I will say it again. Southern CA is not so expensive. I was under that "wrong" impression when I sold my home in Carlsbad. Do you know what you get in Northern VA for 700,000. How about in the well known areas of Florida How about around New York or Chicago I think that one ingredient people leave out is that where there is desirable land - near centers of commerce or ski resorts of beaches you have tremendous demand. And you frequently have two wage earners. Now when you add one or two categories together with good schools and you have everybody and their mother wanting to move there. Hence two people are willing to work. At leaset One salary goes to the mortgage. Had I known then what I know now I would not have sold my home in Carlsbad. There were tons of this is a bubble believers including me. I think I was wrong. It was no bubble. It was the market. People do not need to buy stock. People need to buy houses in Southern California. Of course I could be wrong.
The real problem is with those variable rate mortgages, what happens if interest rate rises 2-3 times, how will they pay?
unlike stocks..............there are no margin calls with mortgages.....so as long as people pay their "monthly nut", they may be poorer...........BUT there should be little drastic financial turmoil based upon this one factor.