Will Housing Prices Collapse?

As a 34 year Los Angeles based real estate investor, my answer may shock you.

Whether you live in the U.S., Europe or Japan, I predict home prices will collapse and they will not rebound for 2 to 5 years depending on what your government does. In the next year alone, there will be a 10 to 20% drop.

Why so dire a prediction? Because economies in all of those nations are fighting a collapse and the health of the housing market plays a crucial role in each economy as does the health of each economy play a vital role in housing prices. In the U.S., huge numbers of foreclosures have been kept off the market for political reasons but not for much longer, particularly after the November 2nd elections.

Meanwhile, the number of jobless and underemployed are mounting and people are slashing their spending, as their savings are being depleted. They're not racing out to buy homes or buy other goods that used to drive the economy.

For many who have jobs, they are now in the service industry paying $10 or $15 an hour, not nearly enough money to buy an expensive home. Home prices are set by what people can afford and many of them can't afford today's prices. They must fall to be affordable.

This is why the U.S. Treasury is about to float an additional several hundred billion dollars in debt over the next several months and why the U.S. Fed will buy most of it. They hope to stimulate the grim U.S. economy to provide more jobs and higher paying jobs but what it will do is flood the U.S. and the rest of the world with cheap dollars, while sinking the U.S. deeper in debt.

What does this mean to you? If you have a home to sell, put it on the market now and price it to sell! Consult your local real estate professional first, but with prices falling, what are you waiting for?

If you need to do a "short sale," meaning to price your home at the current market level by persuading your lender to also take a write off on your mortgage, get started ASAP. Most giant U.S. lenders, the "too big to fail" banks bailed out with taxpayer dollars are slow to respond and in many cases will opt to foreclose instead even though it seems to make no financial sense. You need to know where you stand.

If you rent an apartment, condo or a house and you are a good tenant, you are worth your weight in gold to landlords. As more homes and condos are foreclosed, investors will buy them and in many cases use them as rentals, flooding the market and driving down rents. Everyone will be looking for good tenants and will make concessions to get them.

I'm sorry for this dire prediction and as an investor and landlord, I will share in your pain. But foreclosures and falling real estate prices are a symptom of the problems we caused ourselves from greed, financial irresponsibility and from spending on wars. Despite the actions of the U.S. Fed, we can't spend our way out of our problems, we must solve them.

Throughout history, financial collapses are common, although this one is much bigger than most and already the worst since the Great Depression. When the pain gets bad enough, governments eventually find ways to solve them and market forces also play a crucial role. That will happen here but it took years to get into this mess and it will take years to get out of it, getting worse before it gets better.

Dick
Note: Thank you to my friend and webmaster Jon Barnes, and to my wife Anne for encouraging me to be so candid with you. The intent of this piece is strictly to help you protect yourself.