Virginia Beach Home Prices - Virginia Beach Neighborhoods

When will it get better?

Everyone wants an answer. Jim Cramer, the talk show host of Fast Money on CNBC, says June 30th will be the housing bottom. He worked at Goldman Sachs for years and appears to know what he is talking about. I am doubtful of this claim because everything that I see points towards a recovery further out.

I’ve been listening to economists talk on a variety of business podcasts and their outlook isn’t nearly as rosy. Of course it always comes down to who do you trust. I don’t believe either side is being untruthful, the optimists or the pessimists. But clearly they can’t both be correct.

So, when will it get better?

If better means a return to 2005, it will probably be a decade. If better means that home prices will start rising again, it probably means a couple of years. But they will probably keep slowly falling until then.

We had a housing bubble like we’ve never had before. Most of the time large housing appreciation is followed by a flat trend. This time it got to big too fast and the fundamentals that drove it were an illusion. Everybody, the lenders, the buyers, and the Wall Street investors, all thought housing prices never went down. I can’t tell you how many people who told me that home prices in Virginia Beach had never fallen. And they were right! Up until now, they never had.

So buyers borrowed more than they could afford in a normal market. The lenders lent more than they normally would in a normal market. Wall Street took risks they would not have taken in a normal market. And now the chickens are coming home to roost.

The buyers are going to borrow less until confidence returns. The lenders are going to restrict lending until confidence returns. And Wall Street is going to be over-regulated for the foreseeable future. In my personal opinion, the regulations were in place. The problem is that the regulators did not perform. That is the discussion for another day.

As the job losses mount and ARM’s (adjustable rate mortgages) continue to readjust upwards, we can expect foreclosures to increase. That’s right, increase! As if they weren’t bad enough already. The new administration says that they want to stop the fall of home prices but I don’t believe there is anything they can do about it directly. This thing just has to run its course. You can’t force a home buyer to pay too much for a home!

The housing bottom will come when consumer confidence hits bottom. I hope for everyone’s sake that it is June 30th but I am not holding my breath.

OBTW, there is massive resistance from home owners to the declining price trend. Most of them are at a point where they simply won’t go any lower. This will gradually reduce the number of homes on the market which should match up nicely with the bottom in consumer confidence.

So, if you are thinking about selling your home now, don’t worry about missing out on a huge price jump next year. If you are a buyer, I wouldn’t worry about more huge drops. It’s time we stop thinking about our primary residence, our home, as an investment vehicle. While there are many fantastic tax breaks that come with home ownership, the real purpose of a home is to satisfy one of our three basic needs; food, water, and shelter. We will never forget that it is a place to sleep at night, a place to raise our kids, and place to entertain family and friends. We care more about these things than anything else.

Enjoy your home and live your life. Economic chaos is frustrating, but this too will pass.