Home Price Corrections: Is Worse Yet To Come?
Ok, so we all know that home prices are in the midst of a correction. After a 49% increase in the median price of a home from 2000 to 2005, well, something had to happen, right? But that doesn’t tell the whole story, because, yet again, that’s one of those big national numbers that really doesn’t mean anything to you and me and the price of our homes.
This is why I’m loving John Burns Real Estate Consulting,which took the numbers local and found just how much prices would have to fall for housing costs (this is including mortgage payments, property taxes and down payments) to return to each market’s typical ratio of housing costs/income, i.e. how far to make homes affordable. Check out their findings:
Necessary Price Drops to Reach Historic Affordability:
Miami, FL: -41.4%
Riverside, CA: -41%
Los Angeles, CA: -39.5%
Baltimore, MD: -37.2%
Washington, DC: -33.3%
Las Vegas, NV: -33%
Seattle, WA: -31.9%
San Diego, CA: -29.2%
Orlando, FL: -28.6%
Phoenix, AZ: -24%
Myrtle Beach, SC: -20.6%
Source: John Burns Real Estate Consulting
Now none of these markets is going to correct that much, says John Burns himself, they simply can’t. Homeowners aren’t desperate enough, and the economy isn’t bad. If sellers can’t get the price they want, they’ll just wait until things settle down a bit.
Okay, but this still presents a conundrum. We all know why the prices went up so much: free money. Adjustable rate mortgages fell from 7% to 3.5% during the boom, so buyers had no trouble at all taking on homes they truly couldn’t afford. Now that mortgage brokers/bankers have returned from la la land, I wonder how prices can’t go down this much. I mean, if you don’t have to sell your house, then fine, you don’t. But there are plenty of people out there who do have to sell, especially those whose mortgages will reset.
Foreclosures are on the rise, but most people don’t go into foreclosure, they simply sell, and take the loss. Unless I’m missing some major national salary boost that everyone but me got, then I think home price corrections--and I’m talking in the boom markets only--are going to be a lot more painful than anyone expects
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