If real estate drops 30% the red sector will be upside down. If housing prices drop 50%, then include the yellow area in the total. Figure a worse case scenario of a 50 percent drop, one fourth of all housing has the potential to become "Jingle Mail."
People in the purple band have no equity to lose. Those foreclosures were the first to affect housing prices. Now the home owners in the red region are in trouble. Bank REO's are pricing into the yellow region right now. The red and yellow areas represent cash that was in the home owner's wallet. It's slowly disappearing. Figure about 25% of home owners in the United States have a good shot at losing their down payment and paid in equity. This will affect consumer spending for many years into the future. A drop like that could take the "hurry" aspect out of any future home purchase.
50K off the price of a house in Colorado is different than 300K off of a house in Kalifornia (the pain is not evenly spread out). Examine the disappearing equity. It came from no where and is going back to no where.
Today's home owner is like a baseball player loaded up with Viagra, Ex-Lax and steroids. He doesn't know whether he's coming or going, but he's definitely going to set some records.
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6 comments:
>Today's home owner is like a baseball player loaded up with Viagra, Ex-Lax and steroids. He doesn't know whether he's coming or going, but he's definitely going to set some records.
Now that's one of the best quotes I've ever read. And I've read books of great quotes. Shame it's not family friendly.
Just to be completely accurate, this "home equity" is based on existing mortages. According to the Census Bureau, 30% of the homes have no mortgage...they are paid for (like mine) thus are not part of this chart.
L.W.
http://www.californiahousingforecast.com/guestcolumn/
Can you please give some proof that REO's are selling in the red? In a non-bubble market, like Raleigh, NC, the worst-case price probably is not (for now) even in the red.
Now I do think this chart sets up a Great Depression-like downward spiral and like it. The further into the negative prices move, the faster they'll continue to decline.
Hi Lee
You could be right on 30%. I was being vague on purpose. There are a lot of figures being tossed around out there. Each economist has a different number.
If we use 30% things are worse than we think.
I'm sure each area of the country is different. Out here in California, houses at auction (Bank REO's) are selling in the yellow area.
Click on this Bubble Market Inventory Tracking for more info on what is happening out here. This blogger follows the market with actual houses offered for sale.
Anon 9:09
Thank you for the compliment. I'll try to make the next one family friendly
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