So all the economists and financial experts in the Wall Street Journal crowd have finally reached a consensus on the time frame in which the real estate bubble will deflate. They say it will be a “slow leak.” Oh really? I don’t know were they live but you and I are forced to live right here in the real world.
Not quite a month ago, the former Fed Chairmen Alan Greenspan (here’s another genius) was quoted as saying, “the worst may well be over.” Who’s more ambiguous than he is? (my guess is nobody). The “worst” looks more like a scene from The Terminator when machines take over the world and they’re marching over the bones and debris… an overstatement? Maybe, but let’s look at the facts.
The median prices for existing and new home sales have fallen sharply year over year since July of ’06, according to the National Association of Realtors. This is also the largest price drop in the last 38 years. The Wall Street Journal reported, “The back-to-back declines are the first time median home prices have fallen since 1995,” and the slide is far from being over despite what Greenspan has to say. What’s his next job going to be, fortune teller? Palm reader?
I’m a local Jersey guy, I spend a lot of time on the streets and heavily involved with people, real estate and commercial mortgages. The attitudes I see out there blows my mind.
Homeowners are in denial! The sellers aren’t selling… they’re indignant about the low offers they are getting and they’re waiting (or hoping) for Chris Angel (the magician) to deliver their asking price with no concessions or reduction in price. Fat chance, the situation is about to get much worse.
Those poor souls who bought at the top of the market with “interest-only”, or “low start-rate” adjustable mortgages are about to see their monthly payments double. Interest rates are set to adjust on about $300 Billion in adjustable rate mortgages this year alone. The figure could jump to more than $1 Trillion in each of the following two years, according to the National Mortgage Association figures.
These homeowners are screwed. Having paid top price for their homes with low or NO down payment in many cases using interest-only or low rate ARMS can only sit and watch as their properties have dropped 12-13% in most areas. As the rates go up they can’t pay the payments, they can’t sell their properties… “I’d like to introduce you to the new owner of your home, The Bank!”
The bottom line, we won’t see the bottom of the housing market sooner than two years from now if everything goes well. The rebound? Who knows.
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