In the last several years, the prices of homes have far surpassed their value. What has caused it? Is it about to change more toward market equilibrium? I think it's changing now.
Fifteen years ago, my wife and I hit the housing market just right. We found a house that had been on the market for quite some time. The asking price was reduced from about $100k to about $80k. Based on the asking price for a couple of 'cracker boxes' in our neighborhood, I suspect that now we could sell it for 3 times the original asking price. Part of that cost is that you just can't buy a loaf of bread for what you usetacould. But most of it isn't. How long can the part that "isn't" sustain itself? It's starting to look like not much longer.
There seem to be houses for sale everywhere. Interestingly, though, a lot of homes sell almost the instant that they're advertised (most often they're the less-than-300k variety). But there are ominous signs on the horizon. The California housing market is taking a dive. In many areas, the pool of unsold homes is getting very large.
Nationally, homes appreciated at a 4.25 percent annual rate in the first quarter, a dramatic decline from the 12.6 percent pace of a year earlier.
Home values in many parts of the country plummeted after speculators drove prices sky-high, leaving markets glutted with overpriced homes when demand didn't measure up.
For now, things are looking pretty good in Utah. At 12th lowest, Utah's mortgage delinquency rate is relatively healthy, but that's in large part because the economy is unusually healthy. It's 14th best in foreclosures, and the foreclosure rate is down from last year. But
Foreclosures plague some regions that just a couple of years ago enjoyed high demand for homes and huge run-ups in prices, but today face a soft market and declining prices.
A state's home-sale market and its foreclosure rate are closely linked. In a market like Utah, where homes sell quickly and values are increasing, homeowners with financial troubles often can sell properties quickly and for a price that will cover their mortgages.
But the era of the perpetually increasing home price can't last forever.
If you're in a position where you can refinance or sell, but house prices have fallen below your outstanding loan balance, you're in trouble," said MBA chief economist Doug Duncan
That is happening now in California, Florida, Nevada and Arizona.
Foreclosures there have been pushed higher by people who bought homes on speculation that rising home prices ultimately would yield a profit...
The one left holding the bag when the market returns to a state of equilibrium (or when the pendulum fluctuates even farther) is the loser. A mortgage is a pretty big bag to hold, especially when you're standing on your head.