Back to 2004?

Posted by: Chris Palmeri on March 5, 2008

Economist Robert Samuelson argues today in the Washington Post that home prices have to fall at least 20%, back to 2004 levels, before sales can start to climb again and the housing-related economy revives.

Such necessary-medicine arguments are tough to make. Especially when you’re talking about people losing their homes through foreclosure. But, as Samuelson notes, home prices climbed more than three times as fast as incomes from 2000 to 2006. That’s unsustainable. A fall back to 2004 price levels would still leave many homeowners with 30% gains over the decade.

Reader Comments

Jim D

March 5, 2008 3:44 PM

"A fall back to 2004 price levels would still leave many homeowners with 30% gains over the decade."

Which is why 2004 is probably not going to happen. It'll vary by region, but I'm expecting it to fall here to 2001 levels - which is about where rents are right now - 2001 levels. (This is South SF Bay.) For low end housing, it's already at 2005 levels, and it hasn't even been falling for a year, yet. Remember, almost all housing busts last for over 5 years.

Marcio - S. Florida

March 6, 2008 9:00 PM

This is the only reasonable article I have read on the housing market, yet.

I haven't bought a house because I was financially responsible through the boom years and now the government is propping up mortgages for people that made irresponsible decision.

These house will foreclose regardless of how much help one can give homeowners. This is an income/affordability issue more than it is an issue of unfair mortgage lending.... blah blah blah.

I will make sure not to vote for anyone that supports the propping up of the market.

Louis Timchak

March 7, 2008 1:06 PM

What we need on the mortgage "situation" is a reality check. First seperate out (1)the speculators;(2)the marginal Freddy and Fanny loans and (3)the conventinal loans in trouble. This should be possible. The Jumbos can take care of themselves. Each of these require different criteria and evaluations before any "solution" can be applied. There is no global solution. Most importantly, keep the politicians out of it. This is an election year as we know and none of us are safe from the politicians.

Next. Create a two tier "prime" rate. One to tie mortgage lending to and the other for the investing public, T Bills and all government borrowing. The cost of such a two tier "prime" rate ( it really needs a new name for the 2nd tier) will be substantiall less that what is being floated now. The dollar can't recover until the rate of return recovers. Lowering the prime rate to "save" the public from foreclosure is the kiss of death. If the economy crashes because of the dollar crash (look at history) the foreclosure problem will not matter and all the government programs to solve it will be for naught and be a molehill against the mountaneous consequesces of a dollar collapse. This is no secret and it cannot be wished away or dealt with by a short term political solution that benefits only the politicians.

The solution is inside the box and can be dealt addressed with what is at hand.

flipper-gone-wild

March 9, 2008 12:27 AM

20% is to much. How do you expect me to make a investment killing? Even with taxpayer bailout, and banker rewriting my no-money-down-no-documentation-no-brainer loans,I would barely triple my money on my real estate speculation. With $100 oil and $1000 gold going even higher, heck, at this rate I'll jump ship and join the oil and gold flippers. What ever happen to Land of Opportunity? Hardworking, middle class folks like me just can't make a decent honest living no more! Praise the Lord and Uncle Sam, and pass the debt to the taxpayers, and soak them for all they got. Amen.

flipper

March 9, 2008 12:29 AM

20% is to much. How do you expect me to make a investment killing? Even with taxpayer bailout, and banker rewriting my no-money-down-no-documentation-no-brainer loans,I would barely triple my money on my real estate speculation. With $100 oil and $1000 gold going even higher, heck, at this rate I'll jump ship and join the oil and gold flippers. What ever happen to Land of Opportunity? Hardworking, middle class folks like me just can't make a decent honest living no more! Praise the LLord and Uncle Sam, and pass the debt to the taxpayers, and soak them for all they got. Amen.

Home Care in Dayton Ohio

March 25, 2008 11:23 PM

He is absolutely correct. I have restructured my cost schedule for Home care in Dayton Ohio and our phone is ringing off the hook. People will not spend again until things are cost effective again. Everyone roll back your prices and you will find volume makes up the difference.
Grant Dixon
http://www.MiamiValleyHomecare.net
Miami Valley Homecare

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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