Chapman’s 2006 (Orange County) Forecast: Job Growth to Slow, Housing Prices to Fall 4.2%
Let us assume that is the case and examine what a drop of 4.2% means.
1. The liquid value of real estate is then 11.2% less than "before". Liquid value is defined as how much cash on hand after you push the sold button. The 11.2% came from 4.2% reduction in price plus 7% total selling cost. 7% is probably conservative.
2. Using San Diego as an example, lets say the average home price is $600,000. We are heading into slower months now but let us just use 3,000 sales per month as a yardstick. $600,000X3,000 = $1,800,000,000 in sales. A 4.2% drop equates $75.6 million per month. That is $75.6 million less to put down on the next MacMansion, $75.6 million less for whatever consumption plan joe6pak had in mind.
3. Prof Pigg can probably provide the data. Take the total value of real estate in San Diego, reduce that by 4.2% and you can figure the reduced wealth effect.
4. For California, the state cannot count on that 2% property tax increase for revenue, there may even be some assessment appeals.
5. For someone facing a recast and had already maxed out in LTV with the last refi, they need approximately 3-5% appreciation to facilitate a new refi. A 4.2% drop in value may wipe out whatever gain they may had, putting them in a pretty tight spot.
6. Would a 4.2% drop in value equate a 4.2% drop in real estate related employment? That is probably too simplified but in reality, the effect is likely to be higher.
7. What else? |
