If you think home prices are low now, just wait because we have an encore. Here’s why:
If we use California as an example, we know that the average price of a home was around $436k in 2006. We also know at that same time that affordability was less than 13%, a historic low. Take this combination and you have people getting into loans they couldn’t afford called sub-prime loans.
Most of these sub-prime loans have worked their way into the system but not through the system. In fact, an enormous number of them (that means the majority) have been held back due to moratoriums. The goal of the moratorium was to keep people in their homes but the programs didn’t work. Over 60% of people re-defaulted on their loans after a modification, ergo the recent demise of the moratorium.
After the moratoriums expired it allowed banks to continue the foreclosure and eviction process, which typically takes 2-3 months at least. The moratoriums ended in late March so what we have is a housing sale boom coming this Summer, keep your eyes open for June-August but…
There’s more! Don’t think that after we get through this bulk of inventory that prices are going to rise again because they’re not and probably won’t in our lifetime (that’s inflation adjusted of course).
There’s more defaults to come in the form of alt-a and adjustable rate mortgages that are due to reset all the way through 2012. With that in mind, there will be inventory for several more years. Only after that inventory is worked through can prices begin to stabilize.
Back to California, we’ll have thousands of homes hitting the market in hard hit areas like Sacramento and Elk Grove, arguably the start of this crisis as determined by several national news agencies. So if you think there are lots of empty homes on your block now, wait until August because it will get worse.
If you’re in the market to buy a home, do it this year for the tax breaks. There’s an $8000 federal tax credit and more available through your state. In California you can get an additional $10,000 for buying a new home.
Tags: Add new tag, Economic news, Elk Grove, Folsom, foreclosure, Keller Williams, moratorium, Real Estate, Sacramento, Smith Premier Properties, Tyler Smith
Original post by Dmitri Gromov
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