"In a normal market, this is an $800,000 house"
My oldest son takes karate. I drive him to them twice a week and watch the class with other parents from a lobby that has a large glass wall. One of the mothers in the class, apparently is a real estate agent. As I stood in the room watching my son practice, I couldn't help but overhear a conversation that she was having on her cell phone. She was speaking with a client about putting in a bid on a home. Her side of the conversation went something like this:
"OK...I'll put in a bid for $400,000 but I don't know if they are going to go for it."
Here's the good part...
"In a normal market this is an $800,000 house. It's in a beautiful neighborhood."
At that point I almost collapsed on the floor laughing (I kept my feelings inside). A normal market?!?! So a market in which homes were overvalued by almost every historical metric is normal, but today's prices aren't? Hello?!?! And I'm in the Northeastern U.S., not a market that has really imploded yet like Vegas, Cali, Florida, or Arizona.
I'm not sure if this woman really believes this or if she was full of carp and somehow trying to make more money on the deal, but either way was annoying.
As much as it pains me to say this as a homeowner, I believe that people who think that home prices have bottomed are absolutely nuts. Home prices will not stabilize until foreclosures slow considerably. The only reason why it looked like foreclosures were slowing is that many banks implemented temporary programs at the end of 2008 that delayed them.
Foreclosure filings rose dramatically again during the first quarter (24% year-over-year and 9% versus Q4) to a new record. In fact, the month of March featured the largest number of foreclosures that have ever been recorded in the four years that RealtyTrac has been tracking them.
Not only are foreclosures rising, but many banks are sitting on large piles of foreclosed homes that they haven't even put on the market yet for one reason or another. Not even low mortgage rates seem to be helping. Mortgage applications actually dropped for the first time in a month last week.
Foreclosures haven't peaked yet and home prices won't improve until they begin to slow. This is why despite the beating that I have taken in them, I remain short all major homebuilders in CAPS (thank goodness not in real life or I would have a bleeding ulcer by now).
Falling home prices serve as a major drag on banks as well as they cause the value of a lot of the toxic junk on their balance sheets to drop.
I doubt that we will see much, if any any improvement in the U.S. economy until home prices stabilize.
Foreclosure Filings in U.S. Climbed to Record in First Quarter