patrick.net

I suspect it will drop to 2% or so if prices drop another 10% or so. This will bring the price back up. They're running out of room to use interest rates to boost prices up. Pretty soon, it will be a negative interest rate (they pay you to borrow money to buy a house!) Oh wait! That's what the tax credit was.

The last bullets that the Government and Fed have are the same ones that Japan has used. I do believe they will use them. When? I don't know. Coming soon. 40 to 50 year mortgages, backed by the government (taxpayer) at 2%. House price appreciation for all. A lifetime of mortgage slavery to live the "American Dream". That would kick the can a good 10 years down the road, maybe longer.

Don't underestimate the power of 35 year 3% loans.

The current $720,000 30yr @ 4.5% FHA loan has a monthly nut of $4000 (~$3000 not counting principal repayment).

Changing this to 35 years boosts the purchase price to $760,000 (+5.5%) for the same nut.

Then lowering to 3% boosts to $840,000, for a total of a 16.6% price-up from nothing but monetary policy.

If they were really clever they'd just double the Schedule A deduction, or even turn it into a tax credit. The current deduction allegedly costs $100B/yr, so doubling it might cost $200B/yr more, but compared to the bailouts that's chickenscratch, and it would push the $4000/mo monthly nut to be able to afford ONE MILLION DOLLAR LOANS, even at 4.5%.

If you want lower home prices, I guess a Republican Congress this fall is a good idea.

Jeremy says

are the same ones that Japan has used.

yeah it was only about a year ago that I was looking at Japanese real estate wondering at how expensive it still was. I'd seen the charts of 20 years of decline back to the mid-80s valuations and thought that things would be affordable.

However, for one, the yen was almost 3X weaker in the early 80s (250 then vs 90 now) so the million dollar house now would have been ~$300,000 back then, then I checked the interest rates buyers can get and it all made more sense. $600,000 can buy a decent home in Tokyo now, that's a $2000/mo nut, or only $700/mo in early-80s money.

Make me want to move! Too bad I don't have any of my early 80s money left!

Troy, try getting a bank to lend you money without Japanese nationality or permanent residence! ^_^;

You can get a decent home for a lot less than $600k, even in Tokyo -- as long as you don't fall for the "must have new construction" dogma. Houses aren't built to last, but a fully-depreciated "old" house from the 1980s isn't exactly falling apart. My condo building dates from 1970 and is in fine shape.

Now that branch offices have closed and all the jobs have moved to Tokyo, the other big cities are seeing huge drops. Two weeks ago I saw an old Kyoto townhouse from 1910 selling for a mere $60k (Y5.5m); couldn't believe it. It was only about 40m^2, but it was two stories. A couple with a toddler could live there pretty easily. Japan's "Lost Generation" (born about 1974-1987; too young to make money in the bubble; underemployed thanks to a glut of baby boomers) is quietly reaping the benefits of affordable housing and stable prices.

The price of the home you buy will continue to drop, but as I've mentioned on here ad nauseam, you still come out a winner, because the decline will be less than you will have had to spend on rent.

Michinaga says

as long as you don’t fall for the “must have new construction” dogma. Houses aren’t built to last, but a fully-depreciated “old” house from the 1980s isn’t exactly falling apart. My condo building dates from 1970 and is in fine shape.

My insurance agent went from "Oh your house if 50 years and old and needs..."
To Crap your house is better built than the house we bought in Weston brand spanking new only a decade ago.

These Mansions in question are notorious for among other things, leaking window seals, uneven 2ndFloor joint seams, a bowl like depression in the 1st floor slab, in the living room, roof Sophets that rot with in the first few years, and not least Chines dry wall. Everyone in Florida would do well to buy those 50+ year homes, made back when craftsmen t knew what in the hell they were doing. And the seasonal Jews that made south Florida their Winter homes, were smart enough to hire these capable craftsmen to build them. Today if you can push a wheel barrel, then you are probably the most qualified construction person on the Job site. Everything else is being done proxy contractors, who could care a less about who they send out to do the job as the Over all general contractor of the job site does in his selection of any moron will do.

After my rant, the lady told me I described her house in Weston that she bought in the 90s to the letter. I did not know she lived there, I was just using that as an example.

It's the old houses that aren't going anywhere come hell or high water because they were built to last. That is footing the insurance bill for all of the half ass construction that a loud stereo is a threat of blowing these houses over, that will be paying for that half assed construction for years to come.

These houses are old and still standing with the original roof even after Andrew in 92, Wilma and Katrina in 04, yet they are the ones being singled out to pay higher premiums, while all of the new contemporary houses all sustained damage from Andrew to the 04 hurricane season. These houses built before the 60's did not!

Michinaga says

as long as you don’t fall for the “must have new construction” dogma. Houses aren’t built to last, but a fully-depreciated “old” house from the 1980s isn’t exactly falling apart. My condo building dates from 1970 and is in fine shape.

My insurance agent went from "Oh your house if 50 years and old and needs..."
To Crap your house is better built than the house we bought in Weston brand spanking new only a decade ago.

These Mansions in question are notorious for among other things, leaking window seals, uneven 2ndFloor joint seams, a bowl like depression in the 1st floor slab, in the living room, roof Sophets that rot with in the first few years, and not least Chines dry wall. Everyone in Florida would do well to buy those 50+ year homes, made back when craftsmen t knew what in the hell they were doing. And the seasonal Jews that made south Florida their Winter homes, were smart enough to hire these capable craftsmen to build them. Today if you can push a wheel barrel, then you are probably the most qualified construction person on the Job site. Everything else is being done proxy contractors, who could care a less about who they send out to do the job as the Over all general contractor of the job site does in his selection of any moron will do.

After my rant, the lady told me I described her house in Weston that she bought in the 90s to the letter. I did not know she lived there, I was just using that as an example.

It's the old houses that aren't going anywhere come hell or high water because they were built to last. That is footing the insurance bill for all of the half ass construction that a loud stereo is a threat of blowing these houses over, that will be paying for that half assed construction for years to come.

These houses are old and still standing with the original roof even after Andrew in 92, Wilma and Katrina in 04, yet they are the ones being singled out to pay higher premiums, while all of the new contemporary houses all sustained damage from Andrew to the 04 hurricane season. These houses built before the 60's did not!

Those houses built in the 50's will last another 60-100 years with ease.
And as for a 50 year old barrel tile roof, there are roofs in Mexico, Italy, centuries old.
And the Floridian Topiseal white fibre coating they put on those roofs, now produces a 2inch think vulcanized fiberglass shell over the Clay Tiles. It's still the original roof because It's well built Hiproof that survived 5 Hurricanes. If you count the 1962 active hurricane seasons and hasn't needed one. It's the new construction across the street you wouldn't want to put up against out lasting my roof.

You raise a Cost of Goods question. What is the cost of lowering interest rates (growign credit base)? What is the cost of NOT doing it? There you have your answer. Asymptote heads for 0%. Of course 0% deflationary is not the same as 0% inflationary. There's the "cost of NOT doing it" part. This is what is keeping the whole credit bubble together. I still think it will float towards 0% because the rewards are felt immediately by those making the decisions while the pain is to be felt later once those dogs have already left the slaughter.