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Housing Could Fall 20 Percent More

By: Steve Johnson

6/4/2008 - 22 Comments

According to an article today at MoneyNew.com, the housing market is in a depression.

They interviewed the chief executive of Toll Brothers, the nation’s largest luxury-home builder, and this is what he said.

“The chief executive of Toll Brothers, the nation's largest luxury-home builder, said Wednesday the housing industry is in a "depression" and any recovery could be two or three years away.”

He went on to say,

“The current housing crisis is the worst he's seen since the mid-1970s, but back then the decline was relatively short-lived.”

Why aren’t people buying?

The relative health of the economy, increase in population, low interest rates and the low jobless rate should result is an increase in demand.  But, the lack of confidence in home prices has put buyers on the sidelines

People are afraid of what is yet to come.  The economy is not really showing any signs of a turnaround.  The bad news just keeps pouring in; more inflation and more job losses.  If the economy continues to spiral down for some time, then buying a house may not be such a good idea.  The Federal Reserve has successfully avoided a collapse of the financial services sector with some fancy footwork for now, but the sharks are still circling.

The housing market could continue to fall for several years, depending on a lot of things. Who knows for sure, but I think the most important thing to watch is inflation.  The dollar could lose a lot of value is the next few years as the sharks continue to take bites out of our hide for borrowing and spending more money then we can pay back. 

When to buy?

The best time to buy a house is at the bottom of the crash, which just maybe a few years away.  If you have a steady income, now is not a bad time to buy with the low interest rates that are not likely to stick around much longer with inflation on the rise.  Soon, the Federal Reserve will have to begin raising rates to protect the dollar from further weakness and to keep foreign investors from selling dollar assets including US Treasury bonds. Perhaps a better time to buy will be in three years.

At that time, the housing market will likely find a bottom at 20-30% less than today’s prices.  Although, the interest rates will be climbing and the down payment requirements will be higher as new regulations are put into place.

It depends on what size house you are looking for. If you are looking for a small family house and you have a good job in a growing market (like health care), now is a pretty good time to buy.  If you are looking to make some money from the housing market crash or looking to buy a large house, then you may want to wait a few more years.  The larger houses are likely to come down the farthest and if you have the money to pay cash, then the increase in interest rates will not be a problem. 

Owning a home is perhaps the best investment a family can make. The housing market crash is an excellect time to take advantage of getting a home at a low price. The housing market will probably over correct in the next few years, which just may create a once in a lifetime opportunity to get your hands on a home and a good investment.

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