Friday, June 13, 2008

50% Price Drop: the Frightening Forecast for Some Markets

It's Good to Live in the Hook

We're glad we live where the Bubble is smaller--because the chaos that ensues when prices fall this far--loss of equity, loss of home, loss of consumer buying power, loss of career and social mobility--it's a bad situation.

According to CNN Money, house prices are plunging by more than 30% in some markets, and bargain-hunters are ready to "pounce."

But it may pay for buyers to wait. Many housing experts say that the worst-hit metro areas have even farther to fall, and could see total drops of as much as 50%.

"The housing boom was unprecedented in U.S. history," said Michael Youngblood, a portfolio analyst with FBR Investment Management, "and the correction will be as well."

Prices vs. Wages

Another point covered by this article is the house price v. wage issue. The current nation-wide correction was inevitable, in Youngblood's opinion. Home price gains had simply out-paced income by far too much to be sustained.

Historically, house prices have averaged about four times wages. Whenever homes got significantly more expensive, people could not afford to buy and home prices fell back.

But local price-to-income ratios are still out of whack even after steep price declines, which means prices have further to fall.

We'll be posting more about the wage v. pricing discrepancy here in C'ville.

For now, to read the entire story about wages v. pricing and current projections for the hardest hit metropolitan areas, click here.

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