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August 24, 2006

Today's Housing Bubble Post - PRICES Are Starting To Fall

-- by Dave Johnson

The price drop begins. Sales have been slowing down and inventory has been building up, but prices were not dropping yet. Now we're starting to see the first signs that "real estate always goes up" isn't a law of physics. Home prices in Mass. fall 3.5 percent in July - The Boston Globe,

Home prices in Massachusetts fell 3.5 percent in July, the largest decline in 13 years, as the slowdown in the real estate market finally led sellers to cut their prices.

... Sales of single-family homes began dropping last fall, but prices were slow to respond to the weakening demand.

... Massachusetts is not alone, though the sales slowdown began here before spreading to the rest of the country.

What does this mean? Yesterday I talked about how news of dropping prices will change everything.
Here's the thing. Sales slowing and rising inventories necessarily mean that prices will start to drop soon. And just wait until THAT starts hitting the news. That's the tipping point. That's when people's expectations change. Once people stop seeing house prices rising, everything will change. And when they realize that prices are dropping, everything will really change.
So as of now people understand that this is a market to get out or stay out of or you will lose money. From the article,
But Newton agent Rona Fischman said many are ``still in denial." The steep drop in July sales ``tells me we're in the first year of the price declines," said Fischman, who is with Buyer Brokerage Realty. ``Sellers who really have to sell are waking up and smelling the coffee. There's more coffee coming."

... ``It's possible we're standing at the edge of a cliff, and if we wait the bottom will drop out" of the market, Wagner said about predictions prices will fall further. [emphasis added]

Posted by Dave Johnson at August 24, 2006 5:33 PM

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Comments

The housing market might be explained to be normal. HOWEVER, the prices are way out of wack. The prices will be dropping for at least the next 3 years. This would help make up for the last 5 years since 2001 of insane price increase. Prices need to adjust to historic norms. Things are way out of wack. In several years, we could even see the market adjust down below where it should be.

Posted by: donewithit [TypeKey Profile Page] at August 25, 2006 1:20 PM

I live in South OC, CA. The prices here are out of our reach. We have 20% down ready. We make 40% more than the median income. We rent a 2b/2b/detached garage/washer/dryer apartment for $1700 a month. If we were to "own" a similar place, then our monthly mortgage, taxes, hoa, etc. would be $2200-2400 a month (using a traditional 30 fixed loan). I'm done with this market. Demand in a market is created not by the desire to want to buy but also from buyers with the means to buy.

Posted by: donewithit [TypeKey Profile Page] at August 25, 2006 1:27 PM

If the prices were to drop 25k each year in OC, CA - then this would cover our rent of $1700 a month. Why rent when our 100k in the bank is making a tidy sum each month and the difference in rent to own each month is also money we can sock away. Sure we could have stretched to get into a mortgage last summer and "own" our own place. But finacially, were making out like gang busters, now. Until we actually need to buy - the numbers make more sense to buy and we need a bigger place, then I'm going to rent.

Posted by: donewithit [TypeKey Profile Page] at August 25, 2006 1:34 PM

Not just that, but why would you buy a house that you KNOW will be worth $25-$100K LESS next year?

Posted by: Dave Johnson [TypeKey Profile Page] at August 25, 2006 1:54 PM

"If we were to "own" a similar place, then our monthly mortgage, taxes, hoa, etc"
---------

you're kidding right? I live in South OC too. The median price here is around $720,000. Even using a very unrealistic 20% down ($144,000), the mortgage payment, with property taxes and HOA will be close to $5000/month! Heck, the property taxes on a $700k home itself is about $750/month (at 1.25%). Your figures are way off!

Posted by: kev374 [TypeKey Profile Page] at August 27, 2006 10:27 AM

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