What's so bad about falling home prices?

This is a question I've asked before, but blogger and columnist Daniel Weintraub at the Sacramento Bee asks it more eloquently than I did: What is so disastrous about falling home prices?

Weintraub: "It is great news when the price of energy, food, transportation, health care and consumer electronics drops. But for some reason it is bad news when the price of shelter drops."

More: "So now that housing prices have stopped soaring and in some places are dropping, shouldn't that be good news? Shouldn't we be seeing stories filled with anecdotes about formerly priced-out middle-income families finally getting their chance at the American Dream?

"I understand why foreclosures are bad news, and why the impact of losing a house when you can no longer afford to make the payments is a compelling story. But for every house sold because the buyer couldn't make the payments, there is a buyer on the other end of that transaction who got a good deal. And for every foreclosure, there are probably 10 buyers of nearby homes who benefitted from the general easing of house-price pressure."

It's clear falling home prices are causing some economic damage. Still, these are good points. I know a lot of you will agree, but I'd also like to hear from those of you who disagree. Thoughts? Comments? Email story tips to peter.viles@latimes.com.

Hat tip: Sacramento Land(ing) blog

Comments

[Jason]

The vast majority of people don't really save enough for retirement and depend almost entirely on the equity of their home as their primary source. They are probably the hardest hit.

[yourkillingmelarry]

Falling home prices are a sensitive topic, especially in CA. You might as well be saying 'Falling Bank Account Balances". Remember all the cocktail party conversations about rising home values. It's a polite way of saying "hey, I'm getting wealthy". People don't have direct equity in energy, food, transportation, health care and consumer electronics. When those prices drop their equity actually improves. I rarely talk about my housing views in polite conversation especially with home owners. I could I guess but it may come across as....man, you really overpaid for that house, I bet you feel pretty stupid...or....you are not worth nearly as much as you thought you were and I can prove it with data and facts....or....I guess those four HELOCs weren't such a good idea now that your mortgage is greater than the actual value of your home but hey you have a great car and I don't care what people say hornet nest stung lips look good on you.

[JK]

Falling Prices? Whooo Hooo! Maybe I'll be able to afford a home after all without having to live on the fringes of the Inland Empire!

[John]

Well, falling home prices generally are not good because we are talking about a bubble situation where people have leveraged themselves to the hilt. Most people do not need to lever up for the basics (errrr, in this day and age, many actually do...) or speculate on prices of staples and healthcare. Homes are almost always purchased with debt while those other staples/services are not, typically at least. Sure, lower home prices are good if you're looking to buy or have been priced out in the past but if you're in a home now and you're upside down, well, that's decidedly not very good...

[Mike Johnson]

Personally, I'm glad to see housing prices fall. I bought my first house in 2001, so I watched as it doubled in value. It was fun to watch my net worth on paper rise so dramatically without any hard labor on my part. But I have no intention of cashing out and moving to Las Vegas or Kansas City, so my Zestimate price is next to meaningless. My next home will be a nicer, bigger home in the same city, so I'm glad to see prices come down. If my current house doubled in value, so did my next home, and thus so did the extra money I'll have to cough up when I upgrade.

[Susan]

It's not good news for those who own the homes, because that means a major asset has lost value. This isn't rocket science! It's far more comparable to stock prices than food prices. Falling prices are always good news for *someone*-- but rarely for the producer of the goods or owner of what's being sold. In the case of real estate, that's a lot of unhappy people.

[Michael Snyder]

Mr. Weintraub needs to learn the difference between income and expense. The cost of food and fuel is the driving force behind this “credit crunch.” Tapped out consumers have been hiding these cost by tapping into their equity for a couple of years. Now the bills are due, basic expenses have gone through the roof and the safety net is gone.
Falling housing prices are only a symptom of a much larger problem. To be sure it will open opportunities for a few; but the overall effect is a serious loss for the economy. Job losses will ripple out from Realtors to Contractors to the kid gathering carts at the hardware store. Eventually this economic tsunami will reach Mr. Weintraub’s ivory tower when he realizes his equity / college fund / retirement is depreciating right along with real estate prices.

[Toam Sob]

Good news? How is this good news? Prices are still high! Very high! I am not convinced that the pursuit of the American Dream (buying a home) required 3 to 4 sources of income. Many Americans constantly reinvent themselves for the sake of generating more income. There is no doubt that prices of homes need to drop further by at least 30%. Let not forget that the salaries of most Americans have not been adjust properly for inflation, increases in the standards of living, the trade deficit, and the national debt. It bad enough that some foreign currencies, such as the Euro, are now preferred over the Dollar.

[original thinker]

For the last 30 years, people have viewed their home equity
as a replacement for savings accounts. This is the big problem
with re-orientation. It hurts too much to realize that paper profits
are subject to change. It isn't real until you sell. You only
get your windfall if you are moving into cheaper quarters,
immediately, and able to lock in the profit. Millions of baby
boomers, with retirement relocation or reverse morgaging on the
mind, suddenly have to come to grips with the fact that their
overvalued home isn't the "money in the bank" they thought
it was.

[Martin]

This particular blog item is somewhat manipulative of you, Peter, and an invitation to repeat the same old points about how housing's decline will impact the rest of the economy. It will. It's happening now.

This year, Virginia, Santa Claus is on a budget and his ho-ho stomach is a few inches smaller.

[amir]

Los Angeles has been the home for a huge real estate industrial complex of people that built, financed or sold houses. It created a lot of jobs and a lot of wealth. Now with prices falling down, the complex will need to decrease to a rational size, which is probably half or a quarter of its current size. That means that thousands, if not hundreds of thousands, of jobs in construction, finance or sales will be lost. These people who got rich off the bubble are extremely unhappy and are living in denial.

A lot of the wealth that got created went back into the local economy, into retail sales, cars, food, entertainment etc. And many Angelenos (especially baby boomers) got the wrong headed idea that they could retire based on their home value.

The loss of these jobs will cause a recession in the region that will only accelerate the decline in RE prices. This vicious cycle is not in the benefit of most Angelenos.

The only people that will enjoy this ride will be people whose job is not related to RE nor to servicing RE, are in a recession proof business, and are not current home owners. That's a small group to take this news with cheers.

That's why the press is not rejoicing.

[Amused]

There seems to be a large segment of housing market observers that think they will suddenly be able to waltz into the home of their dreams in a great area of LA if prices continue to drop. These people fail to realize that one of the key contributors to the continued decrease in prices is the tightening of the mortgage market.

What does this mean? If you couldn't afford an 800k house when mortgages flowed like water with low rates and minimal (or no) down payment, what makes you think you can afford that same house at 600k when rates are higher and (more importantly) a big down payment is needed?

[Enlightenment]

Falling prices are great because housing must be affordable, and I'm not talking about the poorer people owning a 5000 sq ft house, I'm talking about the poorer people should be able to get a small tiny house. The problem is the dam bubble made all houses too expensive except for the upper middle class to be able to afford a house, and that is wrong wrong wrong!!!

A house is suppose to be a place to live, and not a flipping ATM machine to support foolish people who DO NOT know how to live within a budget.

Remember all you fools, equity is imaginary money unless you sell your house, and thus you aren't rich and never were rich unless you sold your house. The rich people are the ones that sold their house and left California for a cheaper city.

Houses Should Not Be A Commodity:
http://www.irvinehousingblog.com/2007/06/25/
houses-should-not-be-a-commodity/?ref=patrick.net

A House Is Not A Retirement Fund:
http://bighousingbubble.blogspot.com/2006/02/
house-is-not-retirement-fund.html

[arroyogrande]

"what makes you think you can afford that same house at 600k when rates are higher and (more importantly) a big down payment is needed"

Because I actually have cash for a downpayment. There is a weird subset of the population that actually *saves* money for just such an occurance...and it will be interesting to not have to compete with those people that just really really REALLY want a house, but didnt'/couldn't save a down payment.

And because I have a significant down payement (ie 'skin in the game'), I can actually still get a historically good fixed rate mortgage. Wow, it may actually come to pass that saving money will become a good idea after all!

- arroyogrande

[tew]

Re: "It's far more comparable to stock prices than food prices. "
Not so fast. Economists include shelter costs but not stock prices in CPI (inflation) for very good reasons.

Shelter of a given quality and quantity produces unchanged shelter services over time (subject to maintennce costs). The cost of those shelter services is reflected in home prices. If a given flow of these services increases in price, that's not generally good. Unless the quality and quantity of the shelter services increases, then the price increases are inflationary.

Stock prices reflect claims on future cash flows from businesses. A firm's cash flows in turn reflect the quality and quantity of its output. Productivity drives real growth, which may be reflected in higher stock prices without implications for inflation.

[sunsetbeachguy]

Amused misses a big point.

Yes, interest rates will be higher for a time.

However, every homeowner over their ownership period receives hundreds or thousands of offers to refinance at better rates.

You can very rarely, almost never renegotiate the price.

[poor patrick]

tell all those poor old gringos who live in a tent or something down there in
downtown los angelas that jobs are plentiful but only if youve gone
through 5 years of advanced trigonometery
and 5 years of english analytics with a prerequisit of advanced english
and 5 years of political politeness and gender ,race sensitivity awareness
then maybe that bum will prequalify for a application to take one of those silly job training courses at college.and the job that will probably pay half as much in 10 years as it did now
uuuuuuuuuuummmmmmm
no wonder so many iddiots chose the easy way to make money by playing
the real estate market
and I might add holding the family home for ransome

[Cal]

Falling house prices make it harder for people to move around, few want to buy when prices are dropping (fewer transactions) and as prices fall fewer people are able to move (low / no equity positions). When people buy and move there are whole industries that benefit (movers, loan officers, title, realtors, furniture stores, etc) it creates a virtuous cycle. When people sit around and not "consume", it is "bad".

In general it isn't a good thing when prices go down just as it isn't a good thing when prices get out of whack with fundamentals. Unfortunately in this world the gov't will respond to prices falling much more forcefully than they will with prices "booming". One of the drivers of the credit bubble was the fed trying to mitigate the damage from the stock bubble burst by excessively dropping rates.

There are fundamentally fewer buyers now do to the contraction of credit (and some dar say.. local recession) , the supply and demand rules are now overcoming the irrationality of buyers and sellers.

[Tex]

I didn't register for the Sacramento Bee, so I didn't read the entire piece, but based on Pete's quotes from the blog, Weintraub is making one of the same points I have been making all along -- that lost in all the hand-wringing over falling real estate prices are the stories of fiscally responsible, hard-working people (many of whom are young families) who need this "correction" in order to *responsibly* attain the "American dream" of home ownership. I am glad someone in the mainstream media is finally making that point.

Although some people will be hurt and that is unfortunate, it's just not healthy to have home prices so high that hardworking families must spend 80% of their income on the mortgage just to have a decent place to live. I think this price correction is, ultimately, good for society. People will be reminded of the virtues of hard work, saving, and fiscal responsibility, and of the consequences of excessive debt and "easy money" that sounds too good to be true (for good reason).

Susan, I'm not sure that people who are unhappy about the price correction necessarily outnumber the ones who are happy about it, at least not here in LA. Most people in LA are renters -- I think Ann posted the stats a few days ago. Lots of today's renters are educated, middle-class professionals who simply refused to overpay for homes with suicide loans. Needless to say, those folks are cheering this correction. As for LA's homeowners, most of them are fortunate enough to have purchased before 2003. So unless they went beserk with a HELOC in the past few years, most homeowners are probably fine. Watching your "Zestimate" go down a few hundred thousand is hardly a true financial loss. Thus the people who face the most harm from this correction are the people who overpaid in 2004-2007 and are now facing the prospect of being upside-down. It sucks to be them, but I don't think they constitute the majority of the population.

[Carmel]

It is a flawed ASSumption that people who didn't choose to buy a vastly overinflated house didn't make enough money to qualify for such a loan or didn't have money for a downpayment. It is now obvious to everyone that the majority of people who bought overpriced homes and are now losing these to foreclosures could not afford these homes in the first place.

Housing Hyper-Inflation.... Easy come, easy go!!!!

[bob]

I think people are missing something obvious here. Sure, some people are going to sell the home and move to make money, but others have to move because of a JOB CHANGE! If you need to move somewhere else for your job, and your home is worth 20% less, but the other place you are going to move has not dropped 20%, that's a big problem. Take Eastvale, CA for example. There should be a class action lawsuit because the builders and government planned 20,000 new homes in a period that is way too short for the actual growth to take place. Owners there have been completely raped as their home prices dropped already 20% from the peak, and more is on the way. What's not wrong with this scenario?!!

[stephen]

glad that prices are falling. has been ridiculous. people who are leveraged out trying to buy a house that really is out of their reach, with hopes of winning big bucks. tough luck. no sympathy. if the stock market goes down, people who invest in that lose out. same difference. quite unbelieveable that a million $$ buys you a townhouse or small SFR. glad that prices are falling. hoping they will plummet. sure, there will be shockwaves, but at least it will force people to buy what they can afford, and not let greed dictate practice. you gamble, you lose. not my problem.

[peter m]

Tanking prices for homes in the poorer parts of LA will lead to increasingly trashed out neighborhoods as lots of folks in the inner hood took out no doc,I/O,100%financing ,stated, and all other toxic mort products and way overpayed for POS 60-90 yr old stuccos & clapboards in such marginal areas of LA county as Bell, Maywood,Compton, Scentral, Inglewood, SGate, Wlimington, East LA. Pomona, La puente, Pacoima, Sylmar, San fernando, ect. The marginal purchasers in these areas will be severly underwater and will abandon the homes to forclosures EN MASS, which will really crater the inner LA areas and the marginal districts all over LA county.

This matters little to insulated Westsiders but overall this will create havoc in the inner city and outlying slummy districts and futher the declines in these areas into trashed out exurban-inner city slums as bad as rampart or pico union.
Just the staggering waves of foreclosures and resets alone will desecrate these already half-way slummy areas and affect the values of the nicer areas adjacent to these districts. Drastic declines in Compton will infect nearby gardena which will affect Carson which in turn will spread to torrance in a chain reaction.
LA City and the entire county is 90% strictly ordinary middle or -lower class working districts or out and out ghettos. The Westside is an anomaly for LA county, a tiny wealthy coastal fringe which is less than 5% of LA cty area and population. Sorry folks LA is not what U thought it was. It is not all Palm trees or sunny beaches .

LA Re is now tanking hard-a hideous price-gobbling monster out in the open and chewing its way thru the exurban landscape.

[JK]

Peter M, you are kidding yourself if you think only the urban ghettos will be affected by this downturn. Even if they make up most of the subprime loans, they hardly account for all of the flippers left holding the bag on their "investment". What do you think these amateur flippers are going to do? I'm will to bet that they will walk away and let the property go into foreclosure.

Also, there will be plenty of job losses in the mortgage, construction and real estate industries; can't pay your mortgage without a job. While you are turning your nose up at people that don't live on the Westside, please trust, there will be plenty of foreclosures to go around.

[24-23; 28-21, etc. etc.]

There's only one person to blame:
Remember where you came from and where you are going
and why you have created the mess you got yourself into
in the first place.
Start by looking in the mirror.

[matt a]

If you value your home for what it is- shelter- a market crash means nothing as long as you can afford the mortgage that you have. People who were planning on double and triple digit returns on their investment forever were as stupid or greedy as those who thought the dotcom bubble would never burst. There will be some sad stories of people who got in over their head due to bad advice, but mostly this will be the story of those who should have known about the saying "if it looks too good to be true..." when they signed their mortgage papers. Overall I think this is great for the little middle class guy/gal that works hard, plays it safe, and now can finally afford that 2 bedroom bungalow in the valley.

[MiddleClassGrowingFamilyFirstTimeHesitantEastsideHomebuyer]

Pete, welcome, officially, to the MSM.

[RR]

My husband has worked in Financial Services with the Police Unions for about 15 years, and the one thing he keeps mentioning is the CRIME rate. He said that any Cop will tell you - the more people lose their homes, the more crime there is going to be. Stop believing you're so insulated. There are a lot of middle class neighborhoods that are going to sink into ghettos when most of the homes have foreclosed. Crime will go up, make no mistake about it, and that affects everyone.

My nephews, however, who graduated from excellent colleges and work at ABC, might finally be able to buy a home someday. Given that they are making the same salary I was when I graduated 20 years ago! Ivy league educated, law school, and 20 years in an executive position and the most we could **RESPONSIBLY** AFFORD was a $300K mortgage in Thousand Oaks. We watched in horror as everyone around us took out all of their equity to buy new SUV's and then mortgage the rest to pay for the gas and BASIC bills. People are FINALLY going to learn to live within their means. SO SORRY. I know it's not always fun, I've been doing it for 20 years now. We somehow sold in January and moved to the east coast to a growing city and bought a house cash. I'm just waiting to move back home again when prices become rational.

[Bob]

Speculative Manias are well documented in the historical record. Anyone that has been through such an experience recognizesthe next one: We clearly were in a speculative mania in housing stock in the US for the last 7 years. A quick look at the historical record tells you that the market re-adjusts once the hype is over. A simple fact should dictate your position on the topic: the cost of housing (entry level to the median house price) is far beyond the support of the median household income (based upon conventional financing and qualification rules) in many areas of the country - particularly LA. Orange County, San Diego, and the Bay area. The bay areas is slightly special due to the venture capital dynamics - but this probably wont spare anything outside of Atherton and menlo park. LA and Orange county unfortunately has a ways to go to re-adjust its housing prices back to where people can afford mortgages. There will be an effect in the economy - but dont overplay it, the US economy is more than just a real-estate transaction machne . Where will the next Mania be ? Who knows .... but probably not in housing ... at least for many years ....

[Jonathan R]

Housing prices went up at about 20% per year. In the last year, prices went down only 5%. The only people who will get hurt are the few hat bought at the peak. The big story that is not reported is that, on the coasts at least, most homeowners have seen their wealth increase greatly. But people who missed the huge boom will never benefit from this tiny bust.

[Aaron Kramer]

Watch this video and you'll understand why falling prices bring fear to the hearts of bankers, financiers and the government.

http://video.google.com/videoplay?
docid=-9050474362583451279&q=money+as+
debt&total=1826&start=0&num=10&so=0&type=
search&plindex=0

Without more debt there is no more money.
Without more money there is no way to pay off previous debts.

[longdriver]

bob, are you kidding? The city should be sued because a bunch of people bought vastly overpriced homes in Corona. Anyone that bought a 600k home out there should have their head examined. 20% drops is a best case and at this point it's already past that. That area will easily see 40% and probably closer to 50% when this is done. There are already hundreds of homes listed 40% off peak in the Corona area. Eastvale and South Corona are both in a world of hurt. I carpool with a resident of that area. Three homes out of 12 on his street are for sale. 2 are now REOs and the 3rd has just dropped the asking price to $399k after paying $626k in mid 06. That's already a 37% fall from peak. Even at nearly 40% off that home has not sold and it's a nice home that backs up to a golf course. I guess the people that bought recently did not read the book about what happpened out there in the early 90s. Values tanked nearly 40% then too!

[yourkillingmelarry]

Jonathon R, you are a funny guy.
"Housing prices went up at about 20% per year. In the last year, prices went down only 5%."

Now if we can just freeze time this would remain a tiny bust. The trend is your friend Jonathon that 5% today will be 10% early next year to 30% to 40% in 09/10. Then this bust won' be so tiny and the coast won't be as wealthy.

[Horizontal Translation]

Always looking for the upside, Bill Gross of Pimco (bond trading king) recommends investing in foreign countries and currencies:

http://tinyurl.com/ytdos6

[Trudy Self]

You are assuming that those who were priced out of the market can now suddenly qualify for a loan for a little less house cost-- that is the assumption that caused the bubble in the first place. Loans are going to be harder to get and in case I am the only one who has noticed, real interest rates charged new homeowners are not following the prime down.

The issue of affordability isn't just price-- it is credit and that is still being tightened.

[Sara in the IE]

To Longdriver: here in the Inland Empire,you mention Corona and Corona South- but are actually speaking of Eastvale and Mira Loma- what did you expect to happen? Farm land was purchased from dairy farmers for upwards of $5 million dollars per "dairy farm" and subdivided into new housing tracts. If you know people who bought in this area then you are acquainted with fools. Every local knew that these areas being developed were not worth the prices set by builders! Mira Loma and Eastvale never were more than outlaying communities in the county areas, and that is all they will be, only more congested, overbuilt and overpriced. Don't blame the city of corona for real estate woes- blame greedy builders, foolish buyers and crooked financial institutions- in county areas of mira loma and eastvale! Duh!

[Aaron Kramer]

Bob,
The next mania is "Green Technology" brought to you by the same producers of the tech bubble, AKA "Y2K".

In case you forgot how it works.

Hurry up upgrade your computer or the old computers will fizz out and we will be thrown back 40 years. (The world is warming too quickly and it's our fault, we must do something)

Oh look tech companies are selling a lot of stuff. I'm sure they'll do this forever. (Invest in economically noncompetitive technology or buy carbon credits from me, I mean a company. We are located down the street two doors down on the right. )

Oh that Clinton economy was just marvelous.(Look at the good we are doing. This is a moral cause and you owe it to your children to do more {I'm not saying Bush is any better, he sucks too. His cronies handed us the housing mess}

Scam ends and the bust begins, finger pointing ensues.(I didn't know that they were going to outlaw certain types of consumption but don't worry if you have enough money you can buy carbon offsets, from me, and pollute as much as you want. God I love carbon indulgences, I mean offsets)

Well, we all got new computers in the tech bubble, hopefully we will actually get cheap renewable energy from the Green bubble that is forming. Remember if they were serious about dependable renewable energy geothermal would be at the top of the list not an also ran. (no sun or wind required and no pollution) But since that technology has already been patented Al won't use it because it won't make him and his cronies rich.

Bubble as I'm using it is -a misallocation of resources that results in the misguided belief that we have entered a new paradigm. The problems that inherently exist in this new paradigm can only be solved through the expansion of the bubble.

[Ragnar]

When I can finally get my family's butts out to Southern California in two/three years, we should be able to buy a home using the downpayment from our equity gained in an area of the country that did not go bubble crazy. Lower housing prices will help us out. We still won't have a mansion, but at least we'll have something decent.

[Chris]

People just need to start looking at homes right now as less of an investment and more of a place to live! A home is not like at all, can you shelter yourself in a stock? The lower the prices go, the better for everyone except those who are looking at real estate as an investment rather than a place to live. And by the way, those investors are what screwed up the market in the first place so I feel like they are getting what they had coming to them.

[Vid]

The problem with this entire discussion is that the price increases from 2002-2006 were, in most cases, not REAL price increases - they were artificially inflated by the rapid proliferation of sub-prime loans. The fact is that until housing prices fall by an additional 30-40% they will still be too high for any home buyer seeking to finance the purchase with a traditional mortgage, i.e. a mortgage in which he/she is building equity by actually paying down the loan and not just gambling on rising prices. The whole subprime mess was a classic Ponzi scheme - it could only keep going as long as people ignored the fact that they weren't actually buying anything - they were simply paying off the debt of the previous buyer. Unless the industry standard winds up switching from a 30-year fixed to a 5 year interest-only ARM (which seems unlikely given the current credit situation) prices will have to fall to approximately 2003 levels and stabilize before any REAL growth can start to take place.

[MyLessThanPrimeBeef]

Falling prices are like falling hair.

If it's someone else's hair, it's funny, but if it's your hair, it's tragic, unless we are talking about leg hair, in which case, a lot of people will not mind, but actually like it.

[National Bubble]

An orderly decrease in home prices over time is a good thing because it washes out all those speculators and allows for a healthier market. Unfortunately, the current drop in home values is anything but orderly and it is going to eventually push the economy into a recession. Especially in areas like Orange County that are heavily dependant on mortgage related jobs.

[toby]

And let's not forget Property tax. In Santa Fe NM (for example) families that lived there for generations were being priced out of their homes because of rising property tax....

The lowering cost of homeownership is ALWAYS a good thing and don't let the few tell you different.

The idea of a homeownership being anything else but savings (the true meaning of equity), is just plan wrong. A good investment? That would be going against history.

[yours truly, Johnny Dollar]

Everyone benefited when Henry Ford lowered the price of the Model T.
VHS and Beta machines were $2,400; everyone benefited with the lower
price. And plasma screen televisions.....

[gfw]

The assets that you've listed have little, if any, resale value. If people buy an asset expecting it to appreciate, then it doesn't, they've made a bad investment. If enough people do it, and enough highly leveraged people and banks go bankrupt, then there's a serious problem.

I don't support a bailout, and I don't own, but we should have been discouraging this sort of speculation. If people justed consumed their shelter, we wouldn't worry so much about the volatility of the price of it. Unfortunately, most people treat their houses like an ATM-- HELOCs, HE Loans, Refis, etc. Now they'll be bust.

[Jimmy]

You research a digital camera (let's say), find the best price and buy it. Then a month later you see it advertised 50 bucks less. Multiply that feeling by a thousand, then add to it the fact that you'll be paying for the next 30 years. This is whats at work here

[Dan]

The problem with the falling housing prices is that they aren't falling fast enough. They should fall as fast as they rose or all those houses will just deteriorate entire neighborhoods as they sit idle and unoccupied.

The real problem is that Americans are so stupid. They are more concerned about how many dollars they think their house can get (even though they won't sell it without buying a different house) than they are about the falling value of the dollars they are paid in.

The crash-and-burn of the U.S. is by far a large real world problem to Americans. It wipes out their savings, their 401Ks and IRAs. It destroys their income base. The dollar drop 10% in this year alone. That's a real 10% drop in every American's income.

American do not even have the choice of buying American products anymore because everything is made in China and a few other overseas countries. That means declining dollars is decline wealth for the typical American.

[CJ]

I think there are more people out here than everyone realizes that have not purchased a house in 3 or 4 years because we felt the price of housing was out of line. Most of my friends in the San Fran bay area have just been saving and many of us can now make a 50% down payment. We believe 3 to 5 years from now will be time to consider purchasing a house. Baby Boomers will be looking to down size, mortgages will ease a little and we will have our pick. Bottom line: when everyone is buying stock, purchase a house or save. When everyone is purchasing a house, save or buy stock. When everyone is saving, buy a house or stock. Stay out of the bubbles! And only bite off what you can chew. Strawberry pickers in $600K houses don't make sense!

[John]

It's only a problem if you look at a home as an asset and an ATM machine. If you actually understand that a home that you live in is a LIABILITY and nothing more than just a roof over your head, than you should care less whether your home goes down in value. In fact, having the assessed value go down means you throw away less money on taxes.

Unfortunately, our country has become little more than a nation that racks up debt to consume imported goods. We need the wealth effect (of rising home prices) to keep the party going.

[Booba]

Falling prices are bad for:
- irresponsible borrowers that bet that prices will go up forever;
- people who cannot earn enough for their "high life", so they can "refinance" (i.e. get in deeper debts, naive kids!) with "cash out".
But these two categotries don't matter.
What really matter is all that real estate gang wants home prices as high as possibe!
Didn't you read confessions of real estate agents that they used to make up to half a milluion bucks a year during bubble time just for taking orders?
Didn't you read Hovanian's confession from K. Hovnanian Homes that sales persons in his company started actually sell houses in 2006, becuase before they just took orders?
And what about mortgage brokers, apprisals and other members of that pack?
Imagine: millions of individuals in America suddenly started making big money without getting extra education or extra hard work! Sure they want to keep it this way!
And their Associate of Realtors, thanks to "independent" and "free" American mass media does a great job so far.
Read article of real estate!
Who the "mass media" quote most? Realtors!
Their "expert opinions" became notorious for their incompetence and pure lie, but "econoimists" from National Association of Realtors and real estate agents are still the most quoted persons in mass media!
Naturally, as I said before, they are interested in preserving high home prices. And they pay "free press" for ads, so "free press" just work their money out.
That's why in all articles of real estate if prices are high the city or state "enjoy" it, and if prices are going down "this is bad"!
Simple, huh? :)

[JP]

FALLING PRICES ARE GREAT!

No one complains about the falling prices of their plasma TVs. Only the stupid and greedy are hurting right now.

Why does the media portray this so negatively? BECAUSE THEY GET A LOT OF THEIR ADVERTISING INCOME FROM REAL ESTATE SELLERS! You guys are on the take, and are to be trusted as much as a Realtor.

[MB]

I am very impressed with the quality of the discussion on this board, as well as the use of spellcheck by the great majority of the posters. It is almost as if all of you (us?) responsible types have been staying out of both the housing market and Internet boards...it is nice to read literate, flame-free comments.

[Doug]

Rent controlled apartments are the way to go. Set up a small business so you can write it off too. Housing? $700,000 for a house that you pay property tax of $7,300 a year, $18,000 in maintenance, and the price will drop $200 a day every day for the next 11 years? Someone told me once they put bars on the windows of houses not to keep people out, but to keep you in. Demand for housing is only going to fall: tough lending standards, people burnt wont want to get back in, crackdown on undocumented workers will reduce population. The business model of the house is over. Builders auctions are great ideas, no realestate commission, buy a house like a share of stock on etrade. Just get per approved, click it and its yours.

[Keith Bjorkman]

I very seldom see people mention the tried and true rule for many many decades that you can (should) only get a mortgage for 3X annual income.
Just googled the stats to get an idea of just how unaffordable things really have become. Different sites had slightly different numbers, thus the range mentioned below. But nationally in 2006 income was about 44,500-47,700 and in California about 51,700-53,800. Thus the national median should be $133,500-143,100 to be affordable (currently still north of 200K). California's should be $155,100-161,400 (currently about 500K).
When mortgages are required to follow the 3X rule either by a regulation or the sensible lender protecting their capital, then prices will drop A LOT and the next generation will have a stable future. It's too late for mine.
Regards, Keith in SF.

[Martin Turow]

I still think $250,000 is a lot of money. Working at a full-time job with a family to support, even with a decent salary of 60k per year, there's little I can buy at 250 k. If I had to put 10% down, it would be nearly impossible, even though I've got great credit. Living in San Diego and being just barely able to pay $1250 for rent, I kept wondering where all these people were coming from being able to buy 500k+ crackerboxes. And now I know---exotic mortgages with no money down. The bottom line is that housing prices have been artificially pumped up and need to come down. I'm glad the cost of housing is dropped. It's just too bad so many people were misled and hurt by the run up. In the meantime, we'll keep on renting until owning is equal or less. Sadly that day might never come or it might take several years.

[Ed Gie]

When you buy something, you are saying that the price is affordable for you and that you have the means to pay for it. If you bought a house for 700K, it says that you are willing and have the means pay for the house. If you lose your job or mortgage rates go up and you can't afford the new payment, then ditch the house and rent an apartment. I don't know about your families and friends, but I don't frown on people who rent. When adjustable mortgage rates were readily available, interest rates were at an all time low(fixed and adjustable). The only direction it could go is up. The borrower must have been drunk to believe that their rate will go lower or stay the same. If you think that your house is an investment, then like all investment, it can either go up or down. I want the government and banks to guarantee my stock investments. Can one of you folks who advocate bailing out troubled home owners help bail me out of some of my bad investments? I bought too much with my credit card, and now the balance is outrageously high. Again, can one of you folks who advocates bailing out troubled home owners help bail me out?

Where in the universe does it says that you are guaranteed that everything you buy will go up in value? Unless the builder guaranteed that he/she will never sell the exact same house for less, you shouldn't have any legal recourse if the builder sells the exact same house for less. If you think otherwise, then lets not stop with houses. Lets make a law where everything people buy will never go down in value(such as cars, computers, toilet paper, desk, clothes, tv, etc...). Once the builder/manufacture lowers the price, he/she will be sued until bankrupt. Only a malicious person would want such a system in our country.

Let me help reprogram homeowners who can't make their mortgage payment: IT'S OK TO RENT!, IT'S OK TO RENT!, IT'S OK TO RENT!, IT'S OK TO RENT!, IT'S OK TO RENT! If your families and friends don't like you because you rent, then ditch them!

Finally, get rid of Fannie Mae and Freddie Mac. These 2 entities will saddle future home owners with huge debt. They want to keep house prices high so future home owners will be forced to borrow huge amount of money to pay for high home prices. Increasing homeownership by loaning huge amounts of money for high home price is a childish system. I say dump the system!

[Bruce]

The speculators and greedy homebuyers have severely damaged communities by making housing unaffordable for teachers, nurses, firemen, police. I don't have any sympathy for some greedhead who bought several homes, or borrowed against his equity to buy a car or vacation.

This is the only market in history in which every single participant was acting on the assumption that "prices always goes up!"

Soon, owning a home will be seen as a money pit - believe it.

[Lee]

I know some people don't want to hear it, but the housing correction is, overall, a very GOOD thing.

There are some parts of the country where only 15-20% of families could afford a house... even a fairly crappy one in a marginal neighborhood. An 'American Dream' that is inaccessible to most is no dream at all.

California was (and still is) particularly bad. Median home prices in excess of $550,000??? No other word for it but DISGUSTING, considering the California median home price was less than ONE-THIRD of that ($177k) in 1996(!).

Gee, let's price nearly ALL first-time buyers right out of the market! That'll work long-term, right? Not.

There's no nice way to say this... the California real-estate market needs an enema, and its gonna get one, kicking and screaming the entire way.

It's the only way to bring demand back up to what it needs to be for the market to stabilize, by bringing first-time home buyers back into the market en masse.

Speculators and those who bought at the peak are gonna be bummed, but it's what has to happen.

[Steven]

What a mess!
What ever happen to the days when you had to put down a good sized downpayment on a house?

The first house I bought required that I put down 15% of the purchase price. I sold my almost new car and bought a older one. I payed cash for it. I did not own a sigle credit card. I sold everything that I could do without. I still did not have enough for the downpayment. I found a second job and worked a few nights a week along with working most wekends. I worked all the overtime that I could for my regular daytime job. It sucked !!!, but I needed the money for the down payment. It took me over a year and a half to come up with the downpayment.

Even when I got my house I still had to work two jobs for over five years until I finally made enough money from one job to live on.

My point is I made Hugh sacrifices to get into my house and to keep it after I bought it. This was my HOME and I was willing to do whatever it took to get it and kept it.

It is a sad state of affairs that the house of today does not seem to be a home.

Steven

[DSL]

To the gentleman who said basically that outside of the 5% of LA on the westside near the coast, the rest of LA is a dump:

I invite you to visit San Marino, La Canada, Arcadia, South Pasadena, and the surrounding area. It is obvious you haven't a clue what you're talking about There are many inner ring suburbs that are very very nice. Not to mention the best public schools in the county.

[Home Hindendurg]

People don't like boring things, like savings accounts.
So they went on this buying frenzy, flying their Rockets with a roofs, into the stratosphere.
Now their Rockets have run out of Rocket Fuel and are going to be coming back down to earth!!!
But, how does it go, "People are SMART"........
Yeah, you keep telling all the bozos that.
I hope the average home price drops to $75,000
I would prefer the BORING $600 a month PITI payment and stick a nice $600 check into the bank, so I am not held hostage by my home.
GREED KILLS! ! ! ! ! !

[Home Hindendurg]

Crash and Burn, BABY.
Give me a $500 a month mortgage, so I can save some money and take yearly vacations, work 40 hours instead of 50+ hours.
This was a huge CRIMINAL Act as far as I'm concerned.
These LENDERS knew where this was heading.
How big of a raise do most people make per year???
2-4%??? While Housing has been going up 6-15% per year.
Take away the ASSUMPTION of selling the property a few years down the road at a 40 - 80% profit and the figure would be BALANCED at 2-4% per year, NOT 10 or 15% per year! ! !
GREED KILLS, and "People are Smart"???

[Home Hindendurg]

Wanted: Someone to buy my old Debt (3 year old MORTGAGE), at 30% more than I paid for it, so I can go get an even higher Mortgage and unload that one in 3 years, at 30% more than I paid for it. Then I can buy someone elses old Mortgage at 30% higher than they paid for it. I can then sell that Mortgage in 3 years at 30% more and buy an even higher priced home...
Is this one of those pyramid schemes or what?
Remember that Cocaine commercial,"I am buying cocaine, so I can work more, so I will make more money, so I can buy more cocaine, so I can work more, so ....."
WAKE UP YOU STUPID GREEDY MORONS....

[Home Hindendurg]

The above post about how this will cause crime to go up, when people start getting thrown out on the streets.
Oh yeah, then we can live in the Police State.
Nobody is getting it, buy a tent, wait until the weather warms up, and walk away from that Ball and Chain.
Greedy Bankers caused this mess.
Let the prices collapse, all chaos will break loose, and houses will then be affordable again, ONCE the dust settles ! ! ! ! ! ! !
Then learn from this, and start SAVING for your futures, not BANKING on a House to finance your Golden years ! ! ! ! ! !