Housing Prices Continue to Fall

In 2008 I published a book entitled, “Creating Wealth in Declining Real Estate Markets – How to Get Rich in the Best Real Estate Market in 25 Years.” Little did I know the real estate market would, or could, get worse!

All indicators support the argument for continued falling prices for US real estate. Jeff Cox, a CNBC writers confirms this when he writes:

It's official: The housing crisis that began in 2006 and has recently entered a double dip is now worse than the Great Depression. Prices have fallen some 33 percent since the market began its collapse, greater than the 31 percent fall that began in the late 1920s and culminated in the early 1930s, according to Case-Shiller data.

The news comes as the Federal Reserve considers whether the economy has regained enough strength to stand on its own and as unemployment remains at a still-elevated 9.1 percent, throwing into question whether the recovery is real.

"The sharp fall in house prices in the first quarter provided further confirmation that this housing crash has been larger and faster than the one during the Great Depression," Paul Dales, senior economist at Capital Economics in Toronto, wrote in research for clients.
According to Case-Shiller, which provides the most closely followed housing industry data, prices dropped 1.9 percent in the first quarter, a move that the firm interpreted as a clear double dip in prices.

Moreover, Dales said prices likely have not completed their downturn."The only comfort is that the latest monthly data show that towards the end of the first quarter prices started to fall at a more modest rate," he said. "Nonetheless, prices are likely to fall by a further 3 percent this year, resulting in a 5 percent drop over the year as a whole." Prices continue to tumble despite affordability, which by most conventional metrics is near historic highs.

The rate for a 30-year conventional mortgage is around 4.5 percent, just above the historic low of 4.2 percent in October 2010. The ratio measuring mortgage costs to renting is 7 percent below its norm, while the price-to-income ratio is 23 percent below its average, Dale said.

Yet other factors are constraining the market. After the fallout from the subprime debacle, in which millions lost their homes when they defaulted on loans they could not afford, banks changed underwriting standards. More than four in every five mortgages now require a down payment of 20 percent, and credit history standards have tightened. At the same time, foreclosures continue at a brisk pace, pushing more supply onto the market and pressuring prices downward.

Then there is the issue of underwater homeowners—those who owe more than their house is worth—representing another 23 percent of homeowners who cannot leave or are in danger of mortgage default. Indeed, the foreclosure problem is unlikely to get any better with 4.5 million households either three payments late or in foreclosure proceedings. The historical average is 1 million, according to Dales' research.
(http://www.cnbc.com/id/43395857)

So what does this mean for the real estate investor? What does this mean for someone considering a new home purchase? Should you wait?

I suggest that now is the time to be securing real estate – and as much as you can safely handle. In most areas, rents are high, vacancies are low, and there a lot of housing available at bargain basement prices.

Is there is risk? Sure! There is also a risk to if you don’t take action.

The current real estate market is now “worse” than that of the Great Depression. While my heart goes out to those whom have lost their homes, there is opportunity for great rewards for those whom will begin to see, and act, on low prices and low, low financing interest rates.

There will be several millionaires created in this market. Will you be one of them? Or, will you sit on the sidelines and reflect later, I shoulda, woulda, coulda.