Quote:
Originally Posted by 8ballrollin
http://www.nytimes.com/2008/03/26/bu...=1&oref=slogin
At this rate it will take a few more years for prices in bubble markets to realign with historical averages. Obviously, all housing markets are local. For example here in King County with Microsoft and Boeing hiring, prices have not moved down much more than 1% in the last year.
But the national numbers raise an interesting question: Does the average homeowner, in a bubble market, view their house primarily as an investment or shelter?
If you view a house as shelter, and plan to stay there for a long period of time, you can wait out a market correction. You know that in 7-10 years you will at least break even and your home will have provided shelter over that time.
On the other hand, if you see your house primarily as an investment, a rational investor would walk away from the loss now. If they bought at the top of the market there is little chance of breaking even in 3-5 years. Of course walking away is not "free" - there is a cost in terms of credit scores and self esteem. You do have to live somewhere, but some homeowners can rent at a fraction of what their upside-down mortgage is costing them. It will be interesting to see where foreclosure numbers go from here.
Maybe, in the end, the biggest market correction will be one of expectations.
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I think the average person sees a home as a shelter. So if they have negative equity trouble only comes when they have to move, for job transfer or somesuch. If they happen to have an equity windfall they can use it save themselves from consumer debt problems, use it to trade-up to a bigger home, better neighborhood, etc. So that is out the window, of course, for many recent homebuyers, and that activity was providing some lift for consumption in the past 3-5 years. The loss of that "paper wealth" may cause recession as much as foreclosures.