@aug—the vast majority of home sales in most area’s of the US in the last 6–9 months are REO’s (lender owned properties). (Until recently REO’s were not counted in home sale statistics). As lenders’ balance sheets become inundated with more and more properties, federal regulators will demand that they 1 raise capital or 2 liquidate properties. Because, lenders are required to hold in reserve 150% cash in relation to repossessed properties. This is why Indy Mac tipped over and Countrywide sold to B of A, and why hundreds of other lenders have tipped over, and Fannie and Freddie soon will be bailed out by the tax payers. So one Billion in foreclosed properties require 1.5 Billion in cash on hand. So what we are seeing now and will continue to see for the next 12 months are banks dumping properties for pennies on the dollar, or the bank looses its charter. My neighbor bought for 620K in 2006 and the bank just dumped the house for 385k (it foreclosed). The 385k becomes the “value” of the other homes in the development. The next home to be dumped by the bank will be 20–30% less than 385k, and on and on.
A home’s value is determined by the value of other home sales in the area of like kind homes. A web site like RealtyTrac will tell you how many homes are bank owned in the area, or for a small fee you can buy the info. Furthermore, the era of cheap credit is over, and it was cheap credit that drove home values up over the last 8 years. Also, wages (decreasing as a whole) do not support rising home values, and it is cheaper by 25%-66% to rent than own, and keep in mind, the home owner owns a declining asset. Most people don’t realize that the game has changed and there are so many “bag holders” holding over-valued flaming bags of poopie.
Look for home values to return to 1997–1998 levels. We have massive over capacity now in most areas of the country. From 4%-20% vacancy, unrented, and empty homes. The laws of supply and demand will exact their damage further.
All the rules of real estate are changed, and it is tough to figure out what true value is.
I suggest http://mrmortgage.ml-implode.com and http://www.rgemonitor.com/index.php as suggested reading.
Some argue we are in a deflationary period, similar to Japan between 1994 and 2006——Japan’s home values are still dropping relative to the boom prices of 1990’s. Deflation means, banks are unwilling to lend and borrower’s are unable or unwilling to take on debt, which is a topic unto it’s self.
It brings me no pleasure to tell of these things, as I have learned many a painful lesson the past few years too.