David Levin

Missing From All the Credit Crisis Coverage: A Realistic Assessment of Where Home Prices Are Headed

Why Florida house prices must continue to go lower

It is all about affordability

The housing market will force equilibrium to be achieved. House prices must come down to accomplish that if only for the fundamental reason of affordability.

The Florida market enjoyed a spectacular coming together of cheap, accessible, plentiful mortgage money, speculator’s irrational exuberance and under priced carrying costs. Prices soared and mortgage lending became increasingly exotic to accommodate the increases. The home purchaser focused on the monthly payment and mortgage loans were structured to maximize that. However, active hurricane seasons launched a series of exponential increases to insurance costs. Massive tax increases based on the market value of the house lagged by as much as a year, so many did not fully incorporate this added expense to the monthly carry. Often purchasers deluded themselves into believing a refinance into a cheaper new introductory rate would permit them to finance the added expense at little or no effect to the monthly payment.

Incomes did not keep pace with the inflation experienced in house prices. With the value of houses now deflating, refinancing is not a possibility. The higher levels of insurance and taxes have added significantly to the monthly carrying costs of a house and appear to be permanent. Mortgage loan interest rates do not appear to be substantially decreasing. The only remaining moving part in the equation is the price of the house.

It is all based on affordability. Affordability is based on the general wage levels of a market area. Substantial Tax and Insurance costs eat into the amount left to service the mortgage loan. The price of the house must come down sufficiently to bring the monthly carrying costs in line with the monthly take home pay. We still have a ways to go.
From Real Estate Analysis and Insight at
DavidLevin.org

"Unexpected Weakness In Home Sales"

Isn't Baghdad Bob already working for the NAR?

NAR's David Lereah: His Own Words on Housing

Sadly Mr. Lareah has compromised his position as the professed economist of the National Association of Realtors, becoming little more than a shill for the NAR. He would do all a service by renouncing the current job title and taking a position with the Marketing department of the NAR.
David Levin
Principal
David Levin & Associates
DavidLevin.org