newreaderAZ

Housing Price Corrections in the Bay Area

What you describe for the Bay Area is playing out in exactly the same way in the metro Phoenix area: houses in new developments on the outskirts and lower-income areas within the City have been decimated by foreclosures and falling prices, while higher-income areas have seen much more modest price declines, limited foreclosure activity and frankly very little sales activity of any kind. These less affected areas will clearly see further price declines, but there is very little forced selling in these areas and little panic to date. The desirability of living closer in (less commute time, closer to needed goods and services), the lower levels of inventory and the fact that these markets have had less speculation and stress should limit the downside potential for values in these areas. The same should be true for houses in San Francisco. That said, if the economy continues on its downward spiral, all bets will be off.

Low Rates, Big Problems

The government through all its actions is trying to slow down the vicious downward economic cycle we find ourselves in. The percentage of distressed home sales (REOs and short sales) in the Phoenix area is near 70% and climbing, and other areas of the country are having similar problems. If job losses keep rising, home values keep falling and confidence continues to deteriorate, then the vicious cycle will continue until we reach depression levels. Our only hope is to prime the pump and attempt to stem the fall, and deal with the inflation mess afterwards. I'm not convinced we need this particular type of pump priming, but pump priming is without question required.