The real estate market is already in the deepest depression in modern U.S. history. If you think it can't get any worse, think again. In several cities, the real estate market is about to drop even more. Home values in many of those cities, such as Las Vegas, have already collapsed as unemployment has shot higher. And with no hope of quick recovery, housing prices are expected to continue to fall. 24/7 Wall St. identified ten housing markets that are expected to drop by at least another 10% by 2012.
Methodology: We used data from the Fiserv Case-Shiller Indexes, which track real estate activity in 380 cities. We selected those that are forecast to have the largest percent price drop between the first quarter of this year and the first quarter of next. We added several other pieces of information to our city-by-city information, including June unemployment levels, median household income, and when home prices are expected to reach their troughs in each market.
Median household income in these cities tended to be near the U.S. median, and in some cases well below. We expected to find high unemployment in these cities. This turned out to be the case. In all but one of the cities we examined, unemployment was well above the national average. The rate was over 18% in two of the cities. This link between unemployment and expected future drop in home prices shows again how insidious the housing price problem is.
Home prices fell from all-time highs in 2006. Home equity tapped by second mortgages had been a tremendous source of income then for families who used it for retirement saving, education, and simple consumer purchases. Three years later, many of those homes were worth less than their mortgages. A large population of homeowners still owed a second mortgage. The burden of those two home loans happened to come at a time when national unemployment rose from 4% in the mid-2000s to 10%. The mix of unemployment and high mortgage payments ripped the home market apart.
The ten markets on the 24/7 Wall St. list of "Housing Markets That Will Collapse This Year," and several other like them, may not see a full recovery in home prices for years. Inventories in these markets tend to be large. Demand tends to be low as the unemployed cannot be buyers. Finally, fear of further price drops all exacerbate the problem. No person or organization, including the federal government, has been able to help support the housing market, although the Administration has tried. Not a single plan has built even a thin net under home values, despite the best efforts of the best economic minds in the world.
COMMENTARY: I didn't want to be the bearer of bad news, but the Second Real Estate Bubble of 2011 is finally here. If you didn't have your home foreclosed on during the last four years, don't worry, now is your turn.
If you've been following my blog, I have been predicting a second real estate bubble since 2010, but the Obama administration granted first-time home buyers a 10% credit in 2010, fueling a temporary increase in the sales of real estate, but that tax credit has expired.
The banks slowed down home foreclosures in the 4th quarter 2010 because they could not provide proof they actually owned the deed to the properties they were foreclosing. That happened because between 2006 and 2008, a lot of the major banks and mortgage companies packaged thousands of loans into mortgage-backed securites, and sold them to investors, and those investors sold them to other investors. By law, your bank or mortgage company has to provide proof of ownership. Those mortgage-backed securities delayed those foreclosures. Now the banks and mortgages like ravenous wolves, are speeding up foreclosures. This will increase the number of unsold homes throughout the country especially in areas hit the hardest by the first real estate bubble in 2006-2007.
Look people, you never ever buy property at its peak. Unfortunately, many new homeowners bought high, and when the bubble hit, the value of their property dropped, and they became "underwater" or owned more than their home was worth. Many of those homeowners, living paycheck-to-paycheck also lost their jobs because of the Great Recession. When this happened, they could not keep up their mortgage payments, and the inevitable foreclosure happened.
There are now an estimated 6 million unsold homes. Many of them are owned by the banks. The round of foreclosures for the rest of 2011 could set a new record. You can read about it in my real estate blog posts HERE.
Some of you will say, but Tommy this is the best time to buy real estate. That's true, only if you intend to buy a home as your residence, and intend to live there for several years. If you are looking for real estate that you can buy on the cheap as an investment, commontly referred to as "flipping property", this is a great time to do that, but beware. If you are unable to flip that home quickly, you could end up getting stuck with it, and if you don't have the financial means to make those mortgage payments in the interim, then you could end up like millions of others have--in foreclosures.
Apparently there are greedy individuals out there who believe they can flip properties forever. That's wrong, of course. Banks aren't lending, and if they do, they require AAA credit and at least 30% down from the buyer. The days of cheap money and no down payment are over people. If you've been watching "Flip That House" on TLC, you know what I mean. I love watching that program. Sooner or later, the flipping party will come to an end. I think 2012 will be it, and TLC will change the name of their show to "Foreclose That House".
Courtesy of an article dated August 15, 2011 appearing in AOL Real Estate
Interesting article, not sure how i came across this but intersting read.
Posted by: christopher Pia | 04/19/2012 at 10:37 AM
Interesting article, I am not sure how I came across an real estate article, but interesting read.
Posted by: christopher Pia | 01/04/2012 at 10:01 AM
Wow, that is rough. An interesting opinion though. I hope the next few years will show a change.
Posted by: hamptons real estate | 10/23/2011 at 04:10 AM