Who agrees that the home prices record 6.7% decline in this "booming" economy is a good thing?

Question

Wed., Dec. 26, 2007
NEW YORK - U.S. home prices fell in October for the 10th consecutive month, posting their largest drop since early 1991, according to a key index released Wednesday.
http://www.msnbc.msn.com/id/22397888/

Considering these are the markets that home prices doubled in a three to five year period. The outrageous prices led to the outrageous lending/borrowing practices. I personally have been hoping for a correction in the over inflated market areas.

Do you agree or disagree and why?

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"Home prices could fall another 10 percent over the next 12 to 18 months before bottoming out, said Patrick Newport, an economist with financial consultancy Global Insight, in an interview."
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Answer 1

Well, the huge rise of the real state values in last few years , didn't have a solid foundation. Plus the large shift of money from real state to stock market are the reasons, for this decline.
It was the sellers market for 5-6 years, now it's buyers market.

Regards.

Answer 2

Long term it is a good thing, short term it is a bad thing and potentially could lead to a depression if other factors kick in such as higher interest rates and higher unemployment. The decline means that some people like those with interest only mortgages who bought their houses in the past few years are probably in a negative equity situation and may also have borrowed against their home leading to even more negative equity. This amounts to a MASSIVE amount of unsecured debt nationwide that may never be payed back, which could cause banks and mortgage companies to go under. As an example 60% of all new mortgages in California (as of early 2007) were interest only mortgages, this alone could cause large scale financial sector loses and failures. If the housing "bubble" bursts we will be in a sustained depression, and we are walking a fine line right now.

Answer 3

What's happening now is a very normal correction that probably won't be over until the end of 2009. It's very simple math. When the cost of housing vs. incomes gets to the extremes it got to the past several years, the market will correct and revert to the mean price where supply, demand and affordability are back to normal levels. Personally, I don't feel sorry for the lenders or the borrowers who got themselves into mortgages they knew they couldn't afford over time. I feel even less sorry for the people who bought homes seeking to flip them for a fast buck. Certain markets like Manhattan where there's simply no potential for extra supply due to lack of land and growing numbers of people seeking to live there will probably maintain their price levels, but the vast majority of the country has huge amounts of available land, unsold houses and sellers wanting or needing to sell. For most of us, the prices can only go down until there's a balance in the markets. I agree that we've probably got another 10% or so to go in most places before this is over. In places like Miami where there's a 10 year supply of condos, or Las Vegas and Phoenix where half the homes were bought on speculation, I'd be willing to bet the prices will drop at least 25% before it reaches bottom.

Answer 4

It is a very good thing. With the inflated prices it made realistically buying a home almost impossible. The guys getting stuck with foreclosures right now are the speculators who drove the price into overinflated territory to begin with so my sympathy meter is pretty low for them. I don't care too much for the risk lenders who drove the market either. Every economics class will tell you that you can't get rich on borrowed money. The market needs to drop further and homes need to be reasonable to buy.

Answer 5

Yes it's a good thing, home prices were ridiculous and not worth what people were asking. It was only a matter of time when you couple that with the sub-prime lenders. The government needs to stay out of this. Rewarding irresponsible home buyers and predatory lenders with financial assistance will just keep the market artificially high, and keep responsible people from buying new homes.

Answer 6

Home prices will fall farther than that and the fall will last longer too!
Of course its a good thing. The reality of lower prices is far more realistic and will led to an eventual recovery.

Answer 7

It could be good for me, I am looking into buying a new house. On the other hand, if the economy totally tanks I might not have a job long enough to make more than a few payments!

Answer 8

On the surface it's not a good thing, but I think your analysis is correct: these homes were over-valued and due for a correction. While it's not going to please everyone, especially those homeowners, I believe things should be valued at what they are reasonably valued at and so the correction is in order.

Answer 9

Oh c'mon Chi. The economy is good. Stop watching CNN. The housing decline is because people bought too much house on sub prime mortgages and are foreclosing b/c they can't afford it.

Answer 10

Yeah - it's a real shame that my house is now worth twice what I paid 4 years ago instead of three times.