Why Are Home Prices Still Falling?

Many economist, and political representatives argue that employment must be improved to solve the foreclosure crisis. They are wrong. The foreclosure crisis, and the underwater mortgage situation must be solved first to improve the unemployment rate. Go to http://www.foreclosurecrisissolved.wordpress.com/ for a detailed explanation.

I would like to know why the fixation is on price. The real estate industry moves forward on volume, not price. The price is a concern of investors. Most people just want a place to live, the more affordable, the better.

Lower prices are not producing more volume as one would expect largely because of the lack of credit. Banks simply are adverse to lending on housing even for well qualified buyers.

You want an explanation? Its this simple.

People buy a new house when they have a new job. But people are being hired with salaries that are lower than they would have been hired before in a different time.

When they go shopping, there are many houses available because the market is saturated. So they pick the one that’s in the best neighborhood, that’s close to their job, and that costs the least.

Now, while all the low costs houses are being snapped up (and slowly because not that many people are moving for new jobs), the people who own houses and need to sell them to move don’t want to drop their prices because they know that their new job isn’t paying as much as the old one did. Or if it is, its not much more. And they want to get the best price out of their house since it dropped value. Well, that makes their property stay on the market longer until they become the individual that dropped it just to get out of the house. Then their house sells and they move in to a lower costing house if they can find one.

There are too many houses. There are too many people who won’t buy marked up stuff now. And there is no unity in the market because people sense houses used to cost too much to begin with. But people are slow to lower prices, so this doesn’t matter.

You can expect them to keep falling for a while yet, I’m sure. Until hiring and wages can fuel the demand for houses.

Get used to the idea that employment is going to continue to fall.

The weight of bureaucratic oversight and penalties (City, County, State ordinances and laws, Federal laws, regulations etc) have grown dramatically over the years until they started to stifle small business.

Now, as employment continues to fall, and the fall accelerates again in 2011, more small businesses are going to the wall. The dream of competition is gone, replaced by huge corporate mills that monopolize the American marketplace.

The jobs are continuing to move overseas, where new manufacturing technologies are being developed to meet the American demand for ever-lower prices.

So the jobs can’t come back, because the products would be three times the price.

This means less people will have the money for mortgages. Prices still have a long way to fall.

Rainmain has it right — outstanding mortgages have contracted by $335 billion per year since 2008. That money is no longer buying houses.

gumOnShoe also has it right. The illiquidity of the seller’s market (which may be psychological in nature, but it’s a real phenomenon) means that prices do not come into equilibrium with demand very quickly.

Let’s face it, millions of people were pouring every penny they had into mortgages and home improvement. Many were planning to retire on the value gained by their homes between 2001 and 2008 — and, they assumed, for years to come. Their bankers were telling them it was the right thing to do, the government was telling them it was the right thing to do, and Allen Greenspan was telling them that they were chumps if they didn’t take advantage of this wealth-generating machine.

Those people are probably going to stand pat for a few more years before they consider selling their home for a fraction of what they thought they would get.

I’m a professional late twenty-something in a pretty lucrative career. Depending on location, my personal income is 1.5 to 2.5x the median household income.

I’m still renting b/c housing prices are too high.

We’re saving a chunk of our income, but I’m simply not willing to drop a bunch of money on a high-risk, high-maintenance, location anchor.

In a mobile world, where I change jobs every 3 years and my next job could be anywhere, it’s really hard to pick just one place and say “that’s where I want to live for a long time”.

Being flexible on where I live has jumped my salary multiple times in the last 5 years.

As much as we’d like to think that home ownership is some mystical path to wealth, it’s also a great way to lock yourself out of opportunities.

While some economists are touting this as a sign of a pending double dip in the American real estate market, it is quite clear that many cities have not seen a price recovery of any kind since the downturn began.

Las Vegas, Nevada has seen among the greatest realignments in real estate prices among major U.S. cities. The median house price has dropped an average of nearly 60 percent since 2005 and in the month of December alone, one in 76 homes were under foreclosure. As well, the city is suffering from one of the worst employment situations in America.

Here’s a look at a devastated real estate market with some examples of homes that have dropped in value by over 75 percent:

http://viableopposition.blogspot.com/2011/01/las-vegas-one-hurting-real-estate.html