dstark

2 + 2 = 4.
2 + 2 does not = 5.

Eventually, it comes down to what a person can afford, not what he can borrow.

From Foreclosure Signs to Auto Repo Lots - washingtonpost.com

UCBChemEGrad

Our society is too focused on the monthly payment vs. total cost.

WashDad

Bad for auto makers. Bad for auto dealers. Good for buyers of used cars. Good for repo men. Bad for depreciation rates on cars that you already own. Probably good for used car dealers. Bad for the owners of the repo'd cars.

By the way, an increase of 10% is not what I would call a soaring increase.

barrons

Everything is exaggerated--an average home price decline of under 5% nationwide--following a 25-100% run-up--is called a disaster. it's a minor correction. Yes some areas were harder hit where there was more speculation, Cali, LV, Fla and the auto belt but most areas are just seeing a downward adjustment and moving along. Close-in solid suburbs are as desirable as ever. Most of the bad stuff is in Sagebrush Estates areas way out on the fringe of cities.

razorsharp

I don't borrow more than I can repay. I have little sympanthy for those who follow the same practice. Of course, if someone loses his or her job or suffers some unexpected health problem, etc. that would be an excemption. I don't think the vast majority of those defaulting meet these type of exceptions.

Dadguy

1) Looking at just the decline of 5% in the median price is like having half a phone number. You need to keep in mind the 23% or so decline in year-to-year existing home sales. Inventories are at 10-month levels. Prices need to come down further in order to hit market clearance. If we compare market clearing prices between the two periods, the decline would be somewhat greater.

2) Even a decline of 5% is serious business for people who are highly leveraged, like recent buyers or folks who are otherwise seriously mortgaged. There was a common assumption that housing prices would continue to go up and people acted accordingly.

3) While some markets are doing fine, what happens in the more troubled markets impacts the financial services industry and has led to the current credit squeeze. Eventually that will have some negative impact on all markets, regardless of location.

UCBChemEGrad

So true...being leveraged is a double-edged sword. It will magnify your gains, but also magnify your losses as well.

barrons

Yes but about 98% of homeowners are not considering selling right now or anytime soon. The inventory glut will be worked off within a year and then the markets will turn somewhat. No they won't go up another 70% in the next five years but the gains in most areas won't go away either. A few years ago (2003) the Bellevue office market was down to $18 psf with 35% vacancy. Within four years the rent was up to $38 and vacanc was under 5%. The margins move pretty quickly once you get over the glut. As soon as the finance community gets their act together things will improve. That too will take another year.

The average home debt is around 50-60% of value. In the grand scheme not that many people are at 95-100% LTV (or more).

UCBChemEGrad

A lot of people who bought homes within the last 3 years are. In some cases, it's better to just walk away.

Silly government band-aids are delaying the inevitable. This is the largest asset bubble in the history of the world...and prices need to return to historic norms.