Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Lizzie Tudor who wrote (39079)	8/25/2005 7:23:30 PM
From: CalculatedRisk	Read Replies (1) \| Respond to of 306849

Norris makes an interesting point - if existing homes transaction volumes fall significantly (what i've been expecting) then we will have a normal housing slowdown and what he describes as "limited damage" - maybe GDP slows down, maybe a recession - but limited. But if transaction volumes stay high while prices are falling, then we may be in for some very tough times. An interesting commentary.

To: Lizzie Tudor who wrote (39079)	8/25/2005 8:27:53 PM
From: Elroy Jetson	Read Replies (1) \| Respond to of 306849

I think Floyd Norris is stating the obvious -- until he suggests that a decline in home sales will indicate nothing much has changed. I disagree with this. During the downturn in 1990, the number of homes for sale increased dramatically yet the number of sales declined - as few were interested in buying a home when prices were declining. If your mortgage is too large to handle, this window to sell lasts for a very short period of time - and with few buyers a major discount from the popular estimate of "market price" is called for to complete a sale. As prices continued to fall, the number of homes available for sale declined sharply as each home owner's potential market price fell below the mortgage amount. The number of home sales became almost non-existent. Most homes on the market were offered as a "Short Sale" where the lending bank had to approve a sale for less than the mortgage amount. Very few banks are willing to approve a Short Sale and this will not change. Then the foreclosures began to appear on the market. Discovering their problems too late or having failed at a Short Sale, the home owner loses the home to the bank. Foreclosure sales drive "market price" ever lower which produces more foreclosures as additional home owners question the benefit of making monthly mortgage payments, many times higher than rent, on a home worth far less than the loan amount. "Creative financing" options have placed less credit-worthy into higher mortgage payments than they qualified for in 1990. They will be more likely to default, resulting in a higher number of foreclosures. I do not believe these creative loans are likely to result in higher levels of home sales as prices collapse. I think that's just wishful thinking. .