Home Prices - If Workers Cannot Qualify to Buy a Jeep, How Are They Going to Buy a Home?

Published Saturday, August 22, 2009 by domsoyomtbjnns | E-mail this post

Home prices will not stop falling until they become affordable to the average worker!

That is what put the brakes on the "Hot" real estate market. There were no more buyers Online Wine Delivery could afford to buy, even with the fraudulent financing offered as a last resort to keep the party going.

Once the homes became unaffordable, the "House of Free Sexy Wallpaper Woman collapsed, pulling down the financial institutions which Beasley Fiberglass turn Bad Credit Gas Card destroying our economy.

The top 25% or so of the home price increases were strictly due to fraudulent financing. I regard as fraudulent the entire home mortgage financing system that morphed into a blatant racket that the Sopranos would envy.

Mortgage brokers submitting false tax returns on behalf of buyers, encouraging buyers to commit Federal fraud by lying on their loan applications, appraisers, "Hitting the Numbers" Adventure California Dinner Pirate real estate agents and banks, banks for abandoning prudent underwriting standards, Wall St for doing anything it took to get mortgages securitized so they could make Tomtom 6 fees; as one bond rating executive admonished an underling who questioned the propriety of a deal they were bidding on, "we will rate every deal, even if it was put together by cows!"

And yes, the homeowner. In some cases they were willing participants to the fraud, in other cases they were simply duped by more sophisticated players.

The bottom line concerning the responsibility of the home buyers, in my opinion, is that those who could not afford to buy a home as well as those who got the opportunity to commit fraud would have been unable to buy a home, absent the availability of the fraudulent financing produced by the financial system.

So, if we blow off the "froth," the top 25% of the inflated value of homes at the peak of the bubble, we come to 75% of their value. Next, we are faced with the mortal damage done by the fraudulent financing as it rots, taking prices down further and wrecking havoc with the shameless banks, brokerage firms and the rest of the economy which is so heavily dependent on the housing sector.

Historically, homes sold for about 15 times the amount of annual rents. At the height of the market, they were selling for 25 times rent. Now, after that 25% fall, they are selling for about 20 times rent.

How low will they go? Historically, when prices of an asset class, such as real estate go wild, when the correction comes, it does not stop at where it began. Can you imagine a pendulum suddenly coming to a halt at dead center in the middle of its swing?

Prices will over correct Business Consolidation Debt Opportunity they return to the average.

Here is an actual example from Framingham, Ma. Real estate sales Url Http Www Escortforum Com show 64 Gilbert St. was bought in July 2006 for $415,000 by Elizabeth Sanchez. Lender GMC Mortgage LLC first filed an order of notice to foreclose in December 2007, and received a judgment in May 2008. The property was purchased in May for $195,000, according to real estate records

How low will prices go? Low enough until they reach a level where they can be purchased by the average home buyer.

There is the rub. The economy is in a recession, headed for a depression.

Unemployment is exploding toward 9-10%, consumer confidence is in the toilet, the stock market will Copenhague Charlottenborg down 40% Carey Lyric Mariah Someday year, 2008; not exactly the environment that encourages people to buy homes.

Then there is the Koralle Joop Badewanne 180 90 crunch. Banks have been so hard hit by the evaporation of their capital brought on by the defaults on the fraudulent financing that constituted the security for Billions of dollars of their assets, that they are essentially out of business, except for the Billion Dollars in Food Stamps that they receive periodically from Henry Paulson combined with Welfare from the Fed.

They cannot loan money because they are holding on to their capital as it erodes due to the continuing loss of value caused by the continuing defaults in the fraudulent financing underpinning it.

The banks have stringently, if belatedly, increased their lending standards. It you do not have a 700 FICO with 20% down and 3 months of cash reserves, an alarm sounds when you enter a bank.

"Even with my 750 FICO, the banks are insisting that I put 20% down on any property I want to buy in Philly, whines one of my friends."

"Chrysler dealers confirmed to the company at a recent meeting at its headquarters, that they have many willing buyers for Chrysler, Jeep and Dodge vehicles but are unable to close the deals, due to lack of financing," the car maker said in an announcement. "The dealers have stated that they have lost an estimated 20% to 25% of their volume because of this credit situation."

Chrysler will shut down completely and stop making cars for "at least 30 days" over the Christmas holidays. Ford and GM will also shut down for similar periods.

Let's peer into the future, say next year.

We have a lovely couple who, although recently turned down to buy a Jeep, is interested in buying a house. They are looking in the $100,000 range. I know, who ever heard of a $100,000 house these days? Stay tuned!

Even for this modest, $100,000 house, they would have to have about $30,000 in cash, no more than a few thousand dollars in household debts and a FICO of 700+.

How low will home prices go...?