Home prices need to fall (relative to wages) because most homes are just too darned expensive. If people can't buy them, no one can sell them.Bingo! I caught a soundbite from Sarah Palin in the VP debate that eluded to this very point. Basically she said people were convinced that they could get a $300K mortgage when all they could afford was a $100K mortgage -- ahhh -- but appraisers and the real estate industry inflated the values of property so much and so quickly as the flippers and investors gobbled up property that the $300K mortgage payment that they got talked into to buy a $300K house, that is probably only worth $150K. Now it doesn't change the fact that being able to only qualify for $100K means they shouldn't have bought a house in the first place, but for those who bought the $300K house and do the right thing, cut slash, and find every extra penny to keep paying are screwed out of $150K, that maybe at 2% growth per year, which is more normal for real estate they may get back in 2043 they do what most other people would do.Walk. Or what is going on in California, put their house up for sale, buy the $150K foreclosed home right next door contingent on the sale of their over priced home, default, and call it good on the new property. The law protects them in their new home.All the bailout bill does is delay this drop in pricing and it will make the recession work. That is why I keep saying we have close th $5 trillion in bad mortgage debt, not just in subprime, but on the massive of over priced home debt that is out there.
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