I agree that home prices will be somewhat "sticky" on the way down. But the slower they fall, the longer this pain continues. Would we rather have a 1-year wipe-out, or a 10-year malaise? Either way, it hurts. I say get it over with and get these housing prices back to the mean, back to where their PE ratio makes sense, and back to a level where kids can buy their first house again without having to resort to an interest only no doc blah blah blah mortgage...
The nation's long housing boom will end not with a bang but in a prolonged period of whimpering as homeowners suffer through stagnant pricing that could last years. That was the consensus of economists gathered in Chicago as they viewed the likelihood that a so-called housing bubble will end in a crash.
Their conclusion: It won't.But homeowners will no longer be able to use houses as piggybanks, cashing in on gains in appreciation periodically through low-cost refinancings. And many will be forced to hold onto a house or condo for a long time as they wait for prices to rise.
December 10, 2005
Real estate balloon may lose altitude - Rising mortgage rates and longer waits as home sellers seek buyers
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I think the biggest factor in a slow decline will be how much the seller owes the bank. There will be reluctance to lose any money. But when that can't sell, they'll rationalize losing a little bit. If sellers are able to keep on taking the monthly mortgage, inventory will stagnate.
But I think we will see scenarios where there are 2-3 people selling on the same street and a buyer goes to each seller and has an auction of who is willing to undercut the other seller the most.
We are going to see some waves. Buyers have been impatient, but they have waited for years just to see any sort of dip. So when things drop 20%, they feel like JC Penny is having a sale, and it's time to buy again. At least in this scenario, the buyer will be owner occupied most of the time. The new speculator has seen the other speculators lose too much and they start disappearing.
The new run up should be short lived and focused in "hottest" markets as houses will generally still be unaffordable especially with limits on option ARMs + higher rates.
If it were up to me, I wish the bubble would had never formed to begin with. I would like prices to return to normal fairly quickly, say 1-2 years. I am afraid what too quick of a correction would do to the economy.
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