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Want to Know Why Home Prices Will Continue to Decline?

Mystery solved?

blame gameIt is reported that “Home prices will likely decline another 8% from Q409 to the end of 2010, reversing recent gains in the market, for a 34% peak-to-trough drop, according to a Moody’s report which faults the “underwhelming” success of the government’s Home Affordable Modification Program (HAMP) as the key driver for the assumption,” according to Housing Wire.

While many are looking forward, others are looking backward, and this finger pointing is the beginning of what we predict will be a year of the blame game.

The difficulty in looking at the overall housing crisis and determining a cause right now is like determining a cause of death of a homicide victim prior to an autopsy. You’ve all seen CSI, right? Just because there is a hand cut off, it doesn’t necessarily mean the victim bled out that way; there may have been poisoning or something wacky, so there is no reason to look at one body part (or in the case of the real estate industry, one indicator) definitively as the cause of trouble without looking at the entire body thoroughly which can only be done after the fact which is why hindsight in economics is 20/20.

HAMP, but what else?

I say this with hesitation because I’ve personally written many articles on the failure of HAMP along with other writers here at AG. I think HAMP is a major factor in the continuing doom and gloom in the real estate sector, but general lending issues, rising foreclosures and shadow inventories also contribute.

What I’m most interested in is what the recovery process will look like? Is there a magic bullet that will actually help homeowners, buyers and sellers or has the global economy doomed this year as Moody’s indicates? What say you?

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Lani is the COO and News Director at The American Genius, has co-authored a book, co-founded BASHH, Austin Digital Jobs, Remote Digital Jobs, and is a seasoned business writer and editorialist with a penchant for the irreverent.

15 Comments

15 Comments

  1. Louis Cammarosano

    February 16, 2010 at 11:22 am

    Thanks Lani
    My two cents on why home prices might drop (reverse or non occurrence of some of them could cause a price increase)
    -rising interest rates
    -continued unemployment
    -home purchase to rent ratio still high in some areas
    -cessation of purchase of mortgage backed securities by Fed
    -release of shadow inventory by banks
    -end of stimulus in April
    -possible reduction of interest tax deduction for the “wealthy”
    -Increase of “renter” mentality due to potential buyers seeing the devastating effects of foreclosure
    -tighter lending standards

  2. Aaron Charlton

    February 16, 2010 at 11:36 am

    Hmmm…so I guess if we keep going to the government for solutions to all our problems, we may end up like Venezuela. Perhaps the best route for the government to have taken would have been to stay out of our way, and stop spending all our money on projects that are doomed to fail.

  3. Justin Boland

    February 26, 2010 at 7:24 pm

    Boy, if only “hindsight in economics is 20/20” — then economists could at least agree on things that already happened. Sadly, when it comes to most major financial events you can find at least a dozen competing explanations after the fact…

    Anyway, what’s the magic bullet? I think Short Sales are proving their potential every day. The general public might not be aware of Short Sales and their value — yet — but Realtors have been making an awful lot of noise in the past 24 months about the market barriers that are preventing them from closing on Short Sales that SHOULD be closed.

    As much as I want to disagree with your title, the realist in me knows you are right. Realtors and Entrepreneurs frustrated with the 10,000 small disasters of the Obama administration’s approach can turn to one of his most ironic campaign slogans: “WE ARE THE CHANGE WE’VE BEEN WAITING FOR.”

    Then again, I look forward to being proven wrong on what 2010 will bring from Washington, DC. Effective action would be a welcome change of pace.

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