The virtues of overbuilding and another price prediction

10% off of some current prices that is to say - prices in a lot of Boston will go down more like 30-40%, as per the projection - the fact they are only just starting to fall does not actually mean they will fall much less, only that they are slower to fall.

People are confusing the fact that Boston is correcting later in the game with a smaller correction overall. CA, FL, NV, are way ahead of us, MI, NC, SC, GA slightly ahead of us. The bottome line is jobs, and affordability. The people who blame credit conditions are smoking crack. We should have always required a significant down payment (a.k.a. skin in the game) before allowing people to buy a house. Good WSJ article (Saturday issue IIRC), indicates the single largest contributor to non-performing loans is equity (or lack thereof, in this market).
We will continue the slow, grinding correction here in the NE, until revert to
historical affordability ratios, still a long way off. Not a hard concept to grasp really.
hois

I also think that prices will fall very slowly in the Boston area. There are too many families that are willing and able to shell out $700K for a 20 yr old 2500 sq foot colonial. This ridiculousness, even now after the financial mayhem, is propped by the $417K conforming loan limit and fortunate homeowners with growing families that bought homes prior to the bubble. I think it will be at least another year before all of those families have bought, then there will be far fewer buyers willing and able to put >$200K down on a house. Unless, of course, there are MORE government programs to help keep home values propped up.

More building in the West leads to higher inventory levels and bigger price drops (the area saw bigger price appreciation than the Northeast). Nothing enlightening about those statements.

Not sure how Barclays arrived at peak foreclosures in 2010. Peak mortgage resets and recast run through mid 2011 for Alt A and Option Adjustable. It is all but inevitable that home prices will be lower and interest rates higher when those resets occur. So it follows, based upon our experience with subprime, that peak foreclosures should happen at some point after mid 2011.

My wages have doubled in 12 years. I've increased my earning capacity 6% per year annually during that time frame. Just before the bubble expanded, the one-bedroom apartment I rented was converted to condos and sold for almost 3 times my gross income.

The condo, however, has gained hand over fist above and beyond my ability to earn in the same period. At max bubble it was 5.9 times my gross. This was 3 years ago. Now a unit down the hall and overlooking a major roadway, not the quiet courtyard, has been reduced to 'only' 4.2 times my present-day pay. The place is 600 square feet. Just big enough for two, never mind two plus a child.

Is this what trickle-down was supposed to do?

Actually Hung Wang, people are confusing the smaller price decline in Massachusetts, which is a function of a smaller price gain during the bubble, with a sign that Massachusetts is immune. A $300K home in California which went up 100% in value and is now down 50% in value is no different than a $300K home in Massachusetts that went up 50% and is now down 33%. People see 50% and 33% and think Massachusetts if fairing better. That's why a better indicator is to look at prices in terms of a yearly level. If you do that, what you will find is most places are back to roughly 2002 price levels. Ultimately, prices should revert back to pre-bubble levels or lower, just because that's how boom/bust cycles and economic fundamentals work. That means 1998 price levels or lower for Massachusetts.

The thing is, I can show you house after house right here in MA that went up 100% (or more!) just like places in CA did. Many a Boston area home went from $190,000 in 1999 to approx $400,000 in assessed values by '06 or '07... so I don't think 40% decrease makes any sense at all.

That means that a house that was $200,000 at the turn of the millennium should still be able to sell now for $120,000 more?! Why?! For example, why should a 3-bed/1-bth ranch or Cape in Dedham or W.Roxbury reasonably expect to fetch mid-300s if it was a $195,000 house in 2000?

I think a lot of people have forgotten just how quickly that bubble inflated, and are mired in those prices, and the thought that it's still OK to overpay for one's most expensive possession.

Asset prices are headed back to 1980. The banks will simply foreclose and auction off to new buyers with newly created money.

Americans MUST finally learn to NEVER borrow money. Anyone who owes money on a big mortgage taken out in the 2000s is headed for bankruptcy and foreclosure.

Its a win for a new generation of buyers who will be able to buy affordable real estate from distressed boomers in "90% OFF" sales.

CL, your post makes no sense. There will be no 1980s-level pricing. While some people lacked financial sense, many homeowners bought at prices within their budgets and took out sensible mortgages. Baby boomers will not all put their houses up for sale on the same day. The Baby boom lasted from 1945 all the way through 1965. The sale of their homes will go on for decades as well.

I've got to go the other direction from #8 - houses are not going back to 1980 prices. That would be overshoot as well, towards the other side.

Houses are going back to prices that reflect fundamentals. There will probably be some overshoot, yes, but we are still basically talking 1998 prices or so (with structural modifiers for neighborhood and house change)