Meanwhile: Housing Bust: It Won't Be Pretty

[donsu]

http://www.nytimes.com/2004/07/25/business/yourmoney/25watch.html?ex=1091783075&ei=1&en=7786347afd4966c2


-snip-


For now, prices are still climbing over all. The average home price in the nation rose 7.71 percent in the 12 months ended in March.

But the first three months of this year showed far slower growth than previous periods. Prices rose only 0.96 percent, according to the Office of Federal Housing Enterprise Oversight, which keeps an eye on Fannie Mae and Freddie Mac. The last time housing prices grew by less than 1 percent in a quarter was in the spring of 1998.

More ominous, six states showed declines in housing prices in the first quarter: Vermont, Alaska, North Dakota, South Dakota, Iowa and Nebraska. No state had price declines in the previous quarter

-snip-

None of this would be worrisome if homeowners had not turned the paper profits in their properties into cold, spendable cash. But withdrawals from home equities have recently totaled 6.3 percent of household disposable income, according to the Goldman study. In the late 1980's, equity withdrawals reached only 2.5 percent of disposable income.
-snip-
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wonder how much money realtors have given smirk?

[bleedingheart]

1. I refinanced my house but I got a lower interest rate

and I knocked off 8 years of payments. I did not take any of the equity in my home and convert it to cash....

Many people will lose their homes over this.

[donsu]

2. yes, a lot of children will be affected

nt

[lapislzi]

3. I've been holding my breath

waiting for this. Housing prices in the NY area are insane. This is gonna be one scary free fall.

[gpandas]

4. combine this with...

adjustable rate mortgages and bound to rise interest rates, and creit card debt, and the approaching problem becomes larger still. WTF is wrong with so many people?

[stopbush]

5. THIS is the elephant in the room.

Just about every homeowner I know has refinanced their mortgage and taken equity out of their homes as cash. This has allowed them to continue on a drunken spending spree, and that is one of the major legs supporting the shitty bush economy.

Even though these people are on fixed rates, they've gambled and lost. I've seen reports that state that the worldwide housing market is overvalued about 20%. Can you imagine what's going to happen when this market deflates, which it will? Can you say *1988*? What do you do when you're paying a $400,000 mortgage and your home is worth only $350,000 on the open market? You sit tight, that's what...unless you lose your job or your wife has a debilitating illness and you're forced to sell the home. How many people can survive selling a home at a huge loss? Not many.

Rising interest rates will price out first-time home buyers, ie: the sucker market for unloading problematic properties. Over-leveraged homeowners will try to keep their sale price as high as possible, but when the pool of buyers shrinks, prices will drop. Couple that with rising interest rates across the board, and the stage is set for a major correction, ie: deflation.

And of course, Americans carry an incredible amount of credit card debt. That mitigates against declaring bankruptcy - thanks to bush and the R's, that credit card debt is still FULLY encumbered even if you declare bankruptcy and settle with everyone else at a percentage of your debt.

bushco has spent 4 years turning middle America into an emerging class of serfs who will never emerge from the debt loads. Indeed, they'll end up passing it on to their children, just like bushco is doing at the national debt level. At the same time, our infotainment media will continue to hawk the Horatio Alger mythos by profiling those elites in our society who are well-off, either by birth (politicians) or accomplishment (movie stars, athletes). "You can be just like them if you work hard and believe in the American dream" will eventually be exposed as the lie it is, but not before MILLIONS of Americans have had their lives and their children's lives consigned to the Republican crapper.

[chiburb]

7. Well said, thank you. n/t

[midnight armadillo]

6. Consumerism comes home to roost

Buying junk is the American Way. If people chose to refinance their homes to leverage the purchase of fancier cars, vacations, and the ubiquitous granite countertops, then I must say I won't be too sad to see a big decline in house values.

Granted, some were financing college educations for their kids and other legitimate things like medical expenses, but these are in the minority if media reports are to be believed.

Some areas like Boston where demand far outstrips supply won't see a big crash in value, but rather a leveling off of prices.

[MercutioATC]

8. I don't see this being a real issue except in high-priced markets

with people who took refinanced and took a lot of equity out of their homes. In the big markets, however (NY, LA, Chicago, San Fran) it could be an issue to a lot of people.