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Thread: new Moody survey on future real estate pricing ...

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    Default new Moody survey on future real estate pricing ...

    probably the key piece of data was this projection ... with an even more interesting piece of data being that the 'bottom' in some real estate markets may not occur for two or three more years !




    The reported story about this study is entitled 'The Shifting Calculus of Buying a House' ( at ). However, the article doesn't go into that Calculus to make the obvious point ....

    In a city where real estate values are likely to drop in the future, in the early years of a mortgage the mortgage payment is now basically just a rent payment. The reason of course is that a huge percentage of early year mortgage payments go for paying interest, with only a tiny percentage going towards paying down principal. But in markets where real estate values are likely to drop in the future, the tiny percentage of mortgage payments being applied to principal do not build any equity, since the market price of the house will decline just as fast or faster than the mortgage payments to principal will reduce the outstanding mortgage 'balance'. To complete the calculation, one must add in the other costs of home ownership i.e. property taxes, insurance, upkeep etc. to the monthly mortgage payment.

    When compared to the cost of renting, in the vast majority of cities the cost of renting is now significantly less expensive. Thus many would-be home buyers are now deciding to pay rent and 'sit on the sidelines' to see what happens to housing prices over the next 2-3 years. This of course creates a self-fulfilling prophecy in regard to declining real estate prices, as more and more 'motivated' and 'distressed' would-be sellers have fewer and fewer willing buyers.
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    Last edited by Melonie; 10-15-2006 at 08:18 AM.

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    Default Re: new Moody survey on future real estate pricing ...

    ... and some recently released news points out that a 'domino effect' is now coming into play in many real estate markets - such that earlier projections of real estate price declines may turn out to have been grossly underestimated.




    (snip)"Michigan's job losses are a central issue in the governor's race, in which polls show Democratic Gov. Jennifer Granholm leading Republican challenger Dick DeVos. About one in seven jobs in the state is tied to the auto industry, said Ron Thompson, an economist at Global Insight in Lexington, Massachusetts.

    Most of those who find new employment are taking pay cuts. Many auto workers without college degrees make more than $100,000 a year with overtime.

    ``These are upper-middle-income people,'' said Swonk, the Mesirow Financial economist. ``You can imagine the shift they are going through, coming from having enough to own a second home and even a boat.''

    Julie Taylor said her husband, who used to assemble door- latch components, was among those laid off by parts makers. She declined to name his former employer because she still hopes he'll be called back to work.

    Since losing his job in June 2005, Ken Taylor has begun working in construction. The couple and their 3-year-old son moved into a one-bedroom apartment in the suburb of Southfield, Michigan.

    ``Once you lose it,'' Julie Taylor said, ``you realize just how important a home is in your life.''"(snip)


    the 'domino effect' in question is ...

    A. highly paid (some would argue overpaid) employees of major corporations are laid off
    B. these laid off employees discover that the 'true' value of their skills/labors is much lower in a competitive environment than at their previous job, thus they must take a major pay cut
    C. with a lower income level, many cannot afford their mortgage payments and attempt to refinance
    D. those who are unable to obtain credit to refinance are forced into foreclosure
    E. the market price of real estate in the local market drops with every foreclosed property sold at auction
    F. lower real estate pricing / appraised values due to the sale of foreclosed properties makes it more difficult for others to refinance, forcing yet more homeowners into foreclosure
    G. yet more sales of yet more foreclosed properties further decrease local real estate pricing / appraised values

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