Shiller: Housing Prices Will Continue to Drop 10%-25%

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EDITOR’S NOTE: We already said it here. Now Shiller is saying it. Housing prices WILL keep going down despite the amount of the drop already apparent. And the prices are lower than anything that is actually measured.

Example: AFTER the crash, a friend of mine put his house up for sale for $495,000. The house had been appraised at $895,000. No buyers even looked at it. He lowered it to $445,000. Nothing. He lowered it to $395,000. Still nothing. He lowered it to $349,000. A buyer showed up and the deal was closed at $325,000 on a home with 7 acres, greenhouse, pool, etc. Cash proceeds after the closing were less than $300,000. The price used for measurement by Shiller and others is $325,000. So the actual proceeds are around 10% less than the price on the contract. The $895,000 home went down to $300,000, a decline of 74%+,  and by all reckoning by experts who have been proven right many times over, if he had waited any longer he would have received even less.

Buyers are both not interested and not getting financing even if they were interested. The only deals that are being made are cash purchases, which in my example, was exactly the case. Buyers will remain uninterested as prices continue to slip, and even when prices seem to bottom out they will start heading for lower territory after a while, as this crash has continually demonstrated. Title and title insurance is becoming an increasing concern by buyers and the prospective sources of lending. If the property was ever subject to a loan that was claimed to be securitized, the satisfaction of the old mortgage was probably void or invalid, but that might be OK because the old mortgage might not have been valid to begin with.Who wants to play in that sandbox?

The entire problem relates to one thing: just as prices were artificially inflated by Wall Street antics, now the prices are being artificially deflated by Wall Street antics. The answer is the elephant in the living room. None of the mortgages that were claimed as securitized were valid, enforceable or foreclosable. The “inventory” of REO homes doesn’t really exist. The assets on the balance sheets of banks don’t really exist. And rather than face the problem, everyone is rearranging deck chairs as the Titanic sinks sending all of us to our doom, because of the ensuing drag on the economy. At some point Wall Street will no longer have a voice. Until then both the housing market and therefore the economy will be headed south.

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