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October 26, 2006

Today's Housing Bubble Post - BIGGEST PRICE DROP IN 35 YEARS!

-- by Dave Johnson

NOW it's starting - but only starting. This kind of news will shake up sellers and wake up buyers. Home price drop is largest in 35 years,

The median price of a new home plunged in September by the largest amount in more than 35 years, even as the pace of sales rebounded for a second month.

The Commerce Department reported that the median price for a new home sold in September was $217,100, a drop of 9.7 percent from September 2005.

... The weakness in new home prices was even sharper than a 2.5 percent fall in the price of existing homes last month, which had been the biggest drop on record. [emphasis added]

OK, think about this. You read that prices are now falling at about 10% a year nationally. Who would be dumb enough to borrow $150,000 or so to buy a house that will be worth, on average, $20,000 less a year from now? Right.

If you own a house in the SF Bay Area you just lost, on average, maybe $60,000. If you are thinking about buying a house here you are thinking about borrowing half a million dollars or more to buy in a market where you face $60,000 yearly losses. Nope, not gonna do it.

So you can see what is about to happen. Buyers are going to wait. (Well, the smarter ones are...) And sellers are going to worry that they'd better drop prices enough to sell before it gets even worse.

And then there's all the people with "creative" mortgages with payments that are about to double.

Posted by Dave Johnson at October 26, 2006 9:25 AM

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Comments

I have been reading your site for quite a while now. I am a Ph.D. student who has been studying housing and exotic mortgages for about 6 years now.

As many other viewers on this website, I have been warning all who would listen about the ways the housing bubble would be dramatic and cause an economic crash, only to be called an alarmist or worse!

Now that things are happening, I have the mixed emotions of having predicted a train crash, but who now must witness the catastrophe. Sure, now some are starting to listen, but it doesn't make the waste any more easy to watch.

Whats next? Unemployment for thousands of people working in housing, buying, selling, construction, ect... Then? The newly unemployed will decrease spending, and lose their homes to foreclosure, bringing the price of housing even lower, and contributing to layoffs in larger and larger sectors of our economy. This may take years to get through people!

Posted by: CAPTHEK [TypeKey Profile Page] at October 26, 2006 11:30 AM

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