1.Declining Values : While we might see signs of market stabilization in some previously devastated markets such as San Diego. A flat line recovery might be at best one could hope for, another zig-zag double-dipping volatility could still be possible. Lenders are holding huge number of foreclosed properties, concocting the next scheme to dump those units onto the market.
2. High foreclosure rates : the housing bubble was busted two years ago with the crash of sub-prime mortgages. However, more and more prime mortgages, borrowers with excellent credit history, are being foreclosed because of negative equity after 5 years of precipitous market decline. It is called strategic voluntary foreclosures when home-owners, with amble ability to pay, simply walk away to unload a debt investment burden.
3.High unemployment rates : once a home-owner losses his/her job, it is only a matter of time that home-owner will become unable to meet his/her mortgage obligation, a time delay effect. Un-employment both increases housing supplies and decreases housing demands. Pools of potential buyers are being reduced.
4.Credit squeeze : Banks continue to maintain extremely tougher standard for mortgage qualifications, borrowers do not have many choices of lenders any more. Many buyers have to resort to raise down-payment, or even all cash deal to complete transaction. Congress is drafting new legislature to permanently restrict risky loans and strengthen financial verification. Speculative investments could only be carried out by big private equity concerns.
5.Low interest rate : the current housing market now can be characterized as declining price at low interest rate. What will happen when easy money stops ? When the Fed ceases accommodating policy to stimulate the economy. Higher interest rate must be instituted, which means lower valuation of all assets. The current ballooning federal deficit is a harbinger for tighter money policy by the Federal Reserve to curb future inflation expectation. Interest rate has only one way to move, which is up. Another housing bubble is out of the question, or another housing crash is more likely.
6.Concentrated market : low-end markets show sign of brisk pace of sale, due to lower price range, pinned-up demands and investment speculators. These market forces are temporary ( all cash deal can not last for ever ), and no move-up advancement ( Sale with no net profit for seller to transfer to the next bigger house ). A growing perception of positive cash flow for rental investment might soon evaporate with local property tax increases, high transaction costs, high mortgage costs, and high maintenance expenses.
7.Baby boomers are retiring or being forced to retire in drove. One third of them have zero savings to count on. The only source of money is equity in the house ( whatever remains ), so selling is the only choice. Move-down is an emerging trend for the future. They become net house sellers, moving to smaller adult community units in the sun belt states.
8.Jobless recovery : the most optimistic prognoses for the current economic calamity is an anemic stabilization/stagflation for the next 3 to 5 years. Frugality is the new mantra as consumers try to reduce heavy debt burden by saving more, re-discovering joy of living within one's means. Neighbors do not need to compete for the biggest plasma TV, or the latest model car. Too many cars, too many houses, too many TVs. Over-capacity of everything, excess inventory of merchandise. Do we make anything that could be sold to the world ? or do we still make any thing ? or is everything made in China ?
9.Center of capitalism, used to be on Wall Street, is moving to Washington DC. Greed and fear used to be the human dynamics for stock market , now political fund raising and lobbyists dominate agenda of the day. Entrepreneurship is now deemed too risky, greed is a four letter word. Stimulus programs are the new code word for pork spending, for political horse trading.
10.According to Federal Reserve 2009 Flow of Funds Report, household net worth is now off $14 Trillion from the peak in 2007. This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages).
I want to repeat that we have lost $14 trillion dollars in the past 2 years. That money would no longer be available for spending, or investment. It is an astronomical amount of wealth destruction.
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