johnnybigspenda

How Much Further Will Housing Fall?

House prices (like stock prices) are about future expectations. For example, if you knew that an investment would provide 15% growth for in perpetuity, you would leverage yourself to the max (up until the point where your cost of capital becomes more than 15%).

House prices were bid up with this type of expectation in mind...combined with very cheap capital.

Expectations have changed. (obviously) People now expect a house that is purchased today will fall in value 10, 15, 25% depending on who you talk to. Even a house purchased 'below market value' somehow falls into this expectation.... so the tide will sink all ships.

But wait, there's hope. As buyers (and we know there are lots of them waiting for the right time... pent up demand) expectations change... even to an expectation of 'flat / no growth' for the next couple of years, it will be enough to start the process of restoring confidence that a house is not a place where you lose $50K just by signing on.

The trick would be, are you lucky enough to time the market? ie. buy when people expect declines, just before the expectation turns to 'flat / no growth'. The *deals* are during the negative growth expectation phase.

All of this depends on financing availability. If the cost of capital increases, the sum of the cash flows = less NPV . Lets hope the banks can find a way to start lending money again in the near future.