Falling home prices

[Herald]

It's no shock that home prices in the US are falling. The latest reports believe they will fall another 1-2% before leveling off. I have always believed the falling or rising home prices are merely paper tigers for those who already own a home and fall into one of the following categories:

1. Own their home outright and have no intention of selling for the foreseeable future.

2. Own their home with a mortgage and do not want to move.

3. Own their home with a mortgage and want to sell their home and purchase another in the same or less expensive area.

I want to concentrate on # 3 first.

For arguments sake lets say I own a home that was worth $400,000 before the market tanked. It's not worth $350,000. That's an equity loss of $50,000. If I want to sell my home and buy another home in the same area in which I live I am going to receive less than what I paid on it, but won't it cost me less to buy another home in the same area? If my $400,000 home is now worth $350,000 wouldn't the other home that was worth $500,000 now be $437,500 (same percentage of loss as my home)? I'm sure there are variables that effect the sale of a home but in essence wouldn't fall in housing prices effect all homes in the same price range in the same geographic area?

 

[calgal]

It is a market correction and it will hopefully end "flipping houses" for profit.

 

[MMasztal]

For arguments sake lets say I own a home that was worth $400,000 before the market tanked. It's not worth $350,000. That's an equity loss of $50,000... but in essence wouldn't fall in housing prices effect all homes in the same price range in the same geographic area?

First, your real "equity loss" would be depend on what you initially paid for the home. If you paid $250,000 for the home, a sale price of $350,000 would result in a $100,00 gain.

Second, would all homes in the same geographic region fall the same amount? Probably not. Depending on where you live, home prices for the same home can vary substantially depending on the quality of the schools (which can vary a lot- even in the same town), the neighborhood (busy or quiet street, surrounding properties, taxes-incorporated or unincorporated area), etc.

 

[Wannabee]

As you consider the National Association of Realtors and their estimates keep something in mind. They have predicted that 2008 will see a 1.2% decrease in the value of used homes and 4.3% fall in new homes. That might not seem to bad, but keepin mind that this time last year they predicted a 1.5% increase in used home values, and a 3% increase in new home values. During the year they updated their estimate no less than 10, each time getting worse. In the end they were still wrong, underestimating the drop that took place in the American real estate market.

Many alalysts are predicting that this could be the worst year for housing ever. But, again, just people predicting the future that God ordains...


Back to the question - your overall premise is good. In fact, if one could sell now and close in a couple of months he might actually gain buying power if home values were to drop in the mean time.

 

[VictorBravo]

I think, in a very general sense, you are right. It's trading one asset in a class for another. If they are both going down or up at the same rate, it doesn't make a difference.

But it could get a little painful if you have to take on more debt to get the new house, and values keep going down. In that case you really are losing because the debt isn't going down while everything else is.

 

[A5pointer]

I am a RE broker of 23 years? Why do you ask the question. If I can help with an answer I will be glad to. Joe, you are right, How is it you are so familiar with the NAR revisions? Their predictions always crack me up.

 

[Herald]

I think, in a very general sense, you are right. It's trading one asset in a class for another. If they are both going down or up at the same rate, it doesn't make a difference.

But it could get a little painful if you have to take on more debt to get the new house, and values keep going down. In that case you really are losing because the debt isn't going down while everything else is.

Good point. Also, if a Realtor is used their commission will be less on the sale price of a home that has dropped in value. That may not seem like much but every penny helps.

 

[etexas]

Prediction:Around mid-April you will see people with the "pocket change" buying up existing homes that were driven down in this slump, they will be paying cash. These are not house flippers! They will then hold these assets and sit on them until the deck is cleared of the small timers, they will also buy out vacation homes bought by those who are/were equity rich cash poor. When things are more stable they will "trickle" the property back on the market.