Foreclosures Causing House Prices To Tumble
December 17th, 2008
Foreclosures are causing house prices to tumble alarmingly triggering off an economic slump. Previously real estate had fallen, for instance, during the Great Depression and in Texas during the 80’s, but behind these foreclosures were not at play as the prime factor. It was a part of a general economic collapse. It was an effect and not the cause.
Economist Susan Wachter of Pennsylvania University said, “If we have another 20% decline in prices, we’ll need another bailout of banks similar to what we just did.”
Other pundits are more optimistic. Adam York also of Wachovia, Pennsylvania University is hopeful that the value of houses will start to recover from 2010. He argues, “The one saving grace is the population is growing by 3 million people a year. They need to live somewhere. That means more roofs.”
Until the recent foreclosure crisis hit the nation the house prices were stable without witnessing spectacular investment schemes with people trying to get rich quickly. Robert Shiller of Yale University said that in relation to income the price of houses have remained stable since 1950. It had not become disproportionate.
New houses that had come up were by and large more spacious and costly than the older ones. But with time the value slowly came to be eroded. But California in the 70’s and Texas during the ‘80’s were sharp exceptions to this rule. This applied off and on to Florida also.
Although house prices did not increase sharply, investing in property has always been considered to be smart. People lived in it and then sold it and got their money back at the time of the sale. It seemed a better option to renting. Tax breaks were given to those who borrowed. Equity was built up as a bonus.
But from 2002 till 2006 the pattern changed and houses started to run like the hare and did no longer crawl like the tortoise. The easy mortgage market flushed money into the housing sector setting off a building spree. From 2006 the bubble that had been built up began to deflate causing the foreclosure crisis that is still continuing.
House values will not go back to the peak values of 2006 for decades. Economics will plod along its traditional route and like water will find its own level.
Susan Mistretta, senior director of a bond rating company, Fitch Ratings said, “The price correction has been severe, rapid and probably permanent because lending standards have changed. We are not going to see 20006 peak levels for a very, very long time.”
- Fewer Foreclosures Among Low-cost Brooklyn Homes
- Bank of America is a Lagging Behind in Loan Modifications to Prevent Foreclosures
- The Aftermath of the Housing Boom is Followed by Foreclosure Doom in Homestead
- Lenders Being Legally Challenged for Activating Predatory Lending
- Foreclosures Have Made Life for CEO’s Expensive and Fraught With Fear
- With Foreclosures and Unemployment Continuing it is Doubtful if Recession is Over
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