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Home Prices — 4 Reasons They Will Not Crash

By: Aaron | Written: April 9, 2012

Yesterday’s blog, “Foreclosure Homes Surge = Opportunity and Responsibility”, talked about the scary data showing foreclosures are on the rise. The banking settlement is behind us; the recent weak employment market; and tight loan underwriting on new mortgages; all of this bad news adds up to another banner year for  foreclosures. I know this all sounds very grim, with doomsayers predicting the housing market will implode.

Crashing Home Prices: The End Is Near

I think the doomsayers are wrong again! As always they are only telling half the story.

Here are Alexis McGee’s 4 Reasons Home Prices Will Not Crash…

1. Rents are up, Interest rates are down.

  • As America has downsized to affordable living, more homeowners have moved to rental living. Fact: Rents have been rising steadily over the last 2 years.
  • When combined with low interest rates qualified borrowers are finding “the rent vs. buy” formula has tipped back to buying. Fact:Quicken Loans is advertising a 3.99% Fixed, 30 year loan.
  • Mix in the strong stock market. Fact: The Dow Jones Industrials has been hovering around 13,000 for the last month

Result: Homebuyer demand is very real. In many markets across the country well priced move-in ready homes are receiving multiple offers. Often these properties are going for over “list price.”

(Read more about the split housing market here. )

2. Supply is in check.

Until home prices rise again, it doesn’t make financial sense to build homes. The profit simply isn’t there for the builders. Single family building permits are at all time lows. Although the backlog of foreclosures left from the banking settlement is now hitting the market, if new home inventory is not also coming to market, inventory of existing homes will remain tight, creating support for home prices.

3. Political will.

There are few things on which politicians these days can actually agree. One of the few is foreclosures are bad. All our legislators agree on  on propping up the housing market, and I guarantee that in this election year, government monies will support buying homes.

Folks, this is a Presidential election year. The odds of a collapse in housing prices would be similar to the bankruptcy of the US government. Could it happen? Sure, but that certainly isn’t going to be the case for 2012 (or any year for that matter).

4. Confidence.

The housing market is driven, in large part, by Americans’ view of their own economic future. As American’s, our cultural dream is to find a job, find a spouse, start a family and will be okay. Putting this life in a home we own finishes the dream.

Back to those doomsayers, the group who cling to their early predictions of housing market continued calamity. Remember this quote…

“[We] must trade the tape we have rather than the tape we want” Todd Harrison in “Reflections on the Financial Crisis” (regarding home prices).

The quicker the backlogged foreclosure inventory clears – the quicker the housing market can get back to trading on its fundamentals – and not on fear.

Savvy investors, as I blogged in “Distressed Buying the Buffett Way” are doubling down in housing in right now. As Warren Buffett has said…

“People don’t lose money in recessions. It’s just a transfer of wealth. Which side do you want to be on?… and

“For every seller or lender hurt by real estate, there will be a buyer who will benefit from it.”

So doomsayers, comment below, tell me I am wrong, tweet a link with claims of my insanity. If you agree, drown out the doomsayers rumblings. There will be investors who changed their stars in 2012. Their children will live a very good life. Are you one of them? Tell us what you think about the housing market, and if you have questions, comments or other ideas , we encourage you to comment below. We would love to start a conversation.

Find out how to with the right steps before you buy the wrong foreclosure by watching the replay below of my April 11, 2012 Strategy Session Webinar, “How To Crunch the Numbers and the Right Math:”

Read More Articles on Home Prices:

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