How to Stop the Drop in Home Values?

[magicstix]

You can't stop the drop in home values. They're dropping because they were overvalued in the first place...

You can't stop the drop in home values. They're dropping because they were overvalued in the first place...

Exactly.
Anyone who bought here in the last 10-12 years paid well over the odds(unless in was a special sale)
The homes here will stop dropping in value once they have dropped by about 70% and are once again at real values.

[MothBalls]

the wealth of American homeowners has fallen by some $9 trillion, or nearly 40 percent.

Horsehockey. It never existed in the first place.

The cost of land, labor and materials should determine the value of a home, nothing else.

Same thing for the price of gold. How much it costs to get it out of the ground and process the ore should be the determining value. People think gold is a safe investment, more horsehockey.

Same with the price of oil and gas, the cost of a vehicle, and the cost of food. Once we end speculation, futures and derivatives from the markets we will see prices correct themselves and stabilize. Won't happen though, it would totally screw over the 1% who make the most from it.

[em2nought]

Originally Posted by MothBalls

The cost of land, labor and materials should determine the value of a home, nothing else.

The price of materials hasn't dropped at all. You can't build to current codes for the price of a foreclosure.

[August]

Other things have an effect on the value of a house as well. Location, history and architectural style for example.

[tater]

Originally Posted by magicstix

You can't stop the drop in home values. They're dropping because they were overvalued in the first place...

This.


It's important to realize that the US housing market is very different than most of the world, too. It is my understanding that in Europe loans are "consequence" loans. Meaning that walking away is not an option—if you do, you'll be out a house, AND have garnished wages, etc. The US system allows people to brush themselves off and start over, but also encourages speculation (particularly combined with pressure to loan to deadbeats, etc).

Best solution is to stop underwriting loans (by the government), so that banks have real risk so housing prices can come into line with reality.

[mookiemookie]

Originally Posted by magicstix

You can't stop the drop in home values. They're dropping because they were overvalued in the first place...

Winner, winner, chicken dinner.

Trying to muck with the market correcting itself only draws out the whole painful process longer. I agree with what he says about the wealth effect and whatnot, that's all true, but sooner or later we need to take our medicine and let the market find it's natural equilibrium.

Now if you want to talk about bulldozing excess supply, that's another intriguing story...

Originally Posted by MothBalls

The cost of land, labor and materials should determine the value of a home, nothing else.

That's not the way economics works. The value of a good is determined not only by the factors you mentioned, but by its usefulness, it's scarcity, and the demand for it.

[August]

Originally Posted by mookiemookie

...but sooner or later we need to take our medicine and let the market find it's natural equilibrium.

Besides I seem to recall a lot of complaining just a few years ago about the lack of affordable housing. Surely this drop in house values will do a lot to address this...

[AVGWarhawk]

Originally Posted by August

Besides I seem to recall a lot of complaining just a few years ago about the lack of affordable housing. Surely this drop in house values will do a lot to address this...

The affordable housing issue was addressed by Fannie Mae and Freddie Mac at behest of the government. We see where that got us. They made it affordable on paper. Reality was something much different.

[mookiemookie]

Originally Posted by AVGWarhawk

The affordable housing issue was addressed by Fannie Mae and Freddie Mac at behest of the government. We see where that got us. They made it affordable on paper. Reality was something much different.

FNMA seemed to work just fine for 70 years before the crisis.

[AVGWarhawk]

Originally Posted by mookiemookie

FNMA seemed to work just fine for 70 years before the crisis.

Yes, until a demanded to make affordable housing available to everyone. Reduce down payment. Create interest only loans. Sub-prime. Before all of this down payments were a substantial amount. Upwards of 11% or higher. So, a 200k home you would require $22,000 down at 11%. Fair chunk of change to save. For most unobtainable. So again, drop down payment. Be extremely creative with loans. Toss in the new found credit card extravaganza as a result of getting home loan credit...bingo...in the money pit. Foreclosure, housing crisis.

It is evident the creative loan making, reducing requirements for a substantial loan and some folks just not reading what they were signing made the bubble bust.

[mookiemookie]

Originally Posted by AVGWarhawk

Toss in the new found credit card extravaganza as a result of getting home loan credit...bingo...in the money pit.

Oh, no no, we sold the home equity line of credit as a smarter alternative to a credit card. My favorite line to use was "why pay 15-20% on a credit card, when you could open a home equity line of credit and pay 5%?" It worked well.

But to use the Nuremburg defense, I was young and stupid then and only doing what they told us to do. Now I'm no longer as young, but still stupid.

[Herr-Berbunch]

In this country you didn't used to be able to get a mortgage for more than (IIRC) two-and-a-half times your annual salary as a couple, or three times as an individual.

So if I earnt £25k (which I did years ago, but don't now) I could've got a mortgage for £75k on my own.

Then came along self certification (under Labour for those interested!) and if I saw a house for £130k all I had to do was pretend to make £44k. As long as I could afford the initial repayments they offered - I was in a nice new abode worth almost double what I could've got a few years previously.

Then the interest rates would rise, other bills would rise, and hey-ho, I'd expect someone to come and help me out. That'd be you, the taxpayer! Why should my family and I lose out on this lovely home because somebody made me lie on a mortgage application form? Oooh, you've dropped interest rates, how kind, thank you banks. Sorry savers.

The above is all ficticious, I've never owned a house, or had a desire to, but I just think that those that lied should get their comeuppance!

[mookiemookie]

Originally Posted by Herr-Berbunch

In this country you didn't used to be able to get a mortgage for more than (IIRC) two-and-a-half times your annual salary as a couple, or three times as an individual.

So if I earnt £25k (which I did years ago, but don't now) I could've got a mortgage for £75k on my own.

Then came along self certification (under Labour for those interested!) and if I saw a house for £130k all I had to do was pretend to make £44k. As long as I could afford the initial repayments they offered - I was in a nice new abode worth almost double what I could've got a few years previously.

Then the interest rates would rise, other bills would rise, and hey-ho, I'd expect someone to come and help me out. That'd be you, the taxpayer! Why should my family and I lose out on this lovely home because somebody made me lie on a mortgage application form? Oooh, you've dropped interest rates, how kind, thank you banks. Sorry savers.

The above is all ficticious, I've never owned a house, or had a desire to, but I just think that those that lied should get their comeuppance!

It was much the same here. People had the attitude that "hey the lender knows what they're doing, they wouldn't loan me the money if I couldn't repay it." But the lenders never cared about the loans being repaid. They sold them off to the securitizers on Wall Street to be packaged into garbage securities.

I would go so far as to say the number of loans made that don't rely on income verification and take the borrower's word for it should be a number around zero.

[Osmium Steele]

Originally Posted by mookiemookie

It was much the same here. People had the attitude that "hey the lender knows what they're doing, they wouldn't loan me the money if I couldn't repay it." But the lenders never cared about the loans being repaid. They sold them off to the securitizers on Wall Street to be packaged into garbage securities.

You are on the right track, just keep digging. It does not begin, nor end, with Wall Street. The private securitizers were a symptom, not a cause.