Damaged by the worst mortgage crisis in the nation’s history, the average price of a home will deflate 8.4% in 2008 alone, which is believed to be the steepest drop in home values since the Great Depression, according to the latest Housing Predictor forecast.
However, rapidly worsening market conditions in some areas of the country are expected to send prices down as much as two-thirds from their markets highs as the real estate crisis unwinds over a number of years.
The rapid acceleration of home price deflation in the majority of housing markets, triggered by the subprime crisis on Wall Street has spread into conventional adjustable rate mortgages. The crisis started to explode on Wall Street last summer when investors refused to buy securities to back the mortgages and has sent financial markets on a roller-coaster ride ever since.
The unprecedented record fall in housing prices in the majority of markets has slowed real estate sales of homes and other property. As a result, the Federal Reserve has been on an interest rate cutting binge in an effort to ease financial tensions and stabilize the economy.
Most real estate buyers were unaware that mortgage companies and other lenders were selling off their mortgages at an all-time record clip, which acted to artificially inflate the housing market. Loose lending guidelines with little regulation fueled a mortgage marketplace expansion that grew to new record heights.
Investors saw through the system and lost confidence in the ratings of securities they were purchasing to fund the mortgages, abruptly stopping the purchase of securities that funded the mortgages. The stoppage was akin to a massive revolt.
Like a locomotive barreling down a train track, the crisis has developed into the worst housing recession since the 1930’s, but much larger in sheer numbers of mortgages. Foreclosures have reached record highs and no single risk model is available to forecast the entire dollar loss from the epidemic of foreclosures. Lenders simply don’t know how many homes will be foreclosed. The Housing Predictor forecast of more than 5.6 million properties is based on massive research conducted in more than 250 local housing markets Housing Predictor forecasts in all 50 states.
Housing Predictor analysts, who have studied the crisis in detail, believe it will take at least another two years for the outcome to be exposed. Despite legislative attempts to help some homeowners, it is now clear to analysts that the crisis has expanded at such a feverish rate that there is little Congress can do to assist. The train is barreling down the tracks and the nation’s economy is suffering as a result.
Over time just about all markets will deflate, but not all homes will depreciate in every real estate market in America 8.4%. The average is just the average. Some markets will see deflation of 15% to 20% in 2008. Others will see a dip of 2 to 3% in home values.
Markets, which were filled with subprime loans, will suffer more than those that weren’t. Ironically, Las Vegas has more subprime mortgages than any other in the nation, and the gambling Mecca will take years to overcome this bombshell.
This housing crisis resembles others like the U.S. Savings and Loan Fraud crisis of the late 1980’s and The Great Depression in a handful of ways. But none of the others had the wide ranging levels of fraud and deceptive maneuvers on so many levels that this crisis has produced, sending much of the U.S. economy into a tailspin, which is why analysts say this crisis will take much longer to over come than any other.