Letter Re: The Real Housing Market Bottom

Dear Jim,
In reference to the recently mentioned “housing bottom” article: Most of the articles we’ve read from the various real estate analysts say that housing prices haven’t actually hit bottom yet because the peak of the adjustable rate mortgage (ARM) resets aren’t done until January, though most are done by this August. Throw in financial inertia, as homeowners balk at their new mortgage rate in the face of their home having lost half its value in many cases due to the economy and the prior bubble, and we should expect a surge of foreclosures over the next 18 months. People will either walk away with jingle mail or they’ll stop paying and live rent free while waiting for eviction and pay off their credit cards and student loans so bankruptcy is essentially painless when it happens. A hit on your credit rating is largely a non-issue for Cynics and Stoics who buy with cash in the first place. The turnover of evictions/foreclosures in the various neighborhoods surrounding cities that haven’t hit bottom yet or are struggling through the Great Recession. Someone will buy that house, predicting an increase in value, not realizing that its a Free Market, and the more interest rates rise, the lower price people can pay for the house itself. This drives housing prices even lower, causing a new surge of foreclosures as the underwater mortgages stop making sense yet again. Rinse and repeat through another cycle of foreclosures and resales. This could go on for years before the true value of the house is actually reached.
Oh, and it gets worse. As wages continue to fall, and unemployment keeps rising, income available for a mortgage drops, meaning housing prices must keep falling till we hit the legal bottom limit for wages against food prices for all the family members relying on that one breadwinner. How does $19,000 sound for a nice 3 bedroom, 2 bathroom place in the San Francisco Bay Area suburbs? 20% discount for gold…
Best, – InyoKern