A lot of folks will tell you. Just get out your Ouija board, dim the lights and start pushing the pointer around if you are trying to figure out when West Palm Beach home prices will hit bottom. To a certain extent I have to agree with them. If the old rules and principals of supply and demand were still in effect, it would not be hard at all. But it has been a very long time since we have had a true free market system here in America.
Sure, you will hear pundits tell you how the free market system has failed us and we need to drastically reform the system and get on sound economic footing. Well, news flash. It’s been decades since we approached anything even close to a free market system in the housing and mortgage industry. There are thousands of governmental lending and home mortgage regulations ,codes, orders, codifications, opinions, mandates, stipulations, laws, briefs, standardizations, systematizations, agencies, departments, under departments, committees, sub committees, et.al, that prevent a true free market system from making an appearance. But I digress. The market may be not free but that doesn’t necessarily mean we have to resort to shaking the magical eight ball to get mortgage and home buying answers we are after.Think back a few years ago. I am quite sure you probably saw many of those flip that house, or extreme makeover for a profit television shows that inundates the airwaves. Everyone and their brother were in the real estate business, buying houses, fixing them up and selling them for a tidy profit. As time went on you surely had to start noticing that something wasn’t quite right. Here were people quitting their jobs and qualifying for a mortgage to buy a house to flip Then you probably found yourself talking to you TV with questions like "they paid what for that place and they are going to sell it for what?" which was inevitably followed by "who would pay that for that place". Admit it you got an uneasy feeling in the pit of your stomach that something was wrong and this couldn't possibly continue. Well it did not. So what happened?
Fast forward to 2005, a banner year for subprime mortgage lending. Twenty five percent of all home mortgages were subprime loans. Subprime mortgage borrowers as its name implies are less than prime mortgage borrowers. Now that is not necessarily a bad thing. Giving Americans an opportunity to own a home is a noble idea. And most people don’t have perfect credit. But when in that same year forty percent of all new home sales were purchased with no money down, well that’s a recipe for disaster. We now have set up a situation where housing prices (supply) were driven up by subprime borrowers that have no money in the deal (demand). You can still hear the tic, tic, tic.
It doesn’t take a rocket scientist to figure out if the economy goes south there are going to be a lot of people walking away from some seriously over priced housing. Such is the case we find ourselves in today.
So after all that, when will home prices hit bottom in West Palm Beach?
Home prices will rise when the unemployment free fall ends and consumers start to feel secure in their future. When that happens, pay attention to the rental market that is around you. Pay particular attention to rents for three bedroom units. Now figure what houses are selling for in the area. Take that figure and apply a ten percent down payment and the going interest rate to arrive at a monthly cost to own compared against a monthly cost to rent. When those two figures are pretty close you have hit the bottom. Unfortunately it appears we still have a ways to go.Well that’s pretty much how you can tell when home prices have bottomed out. Now, you are probably asking yourself. If figuring out the rock bottom in home prices in West Palm Beach is as simple as comparing rent versus owning, what was all that talk about free markets?
Well right now there is an eight thousand dollar government gift that your Uncle Sam is doling out to first time home buyers. The program is set to expire pretty soon. So the question becomes, will it be extended, increased or allowed to pass in the night. Whatever happens, 8 grand is going to have an impact on moderately priced housing and you can imagine the impact should they raise the gift to fifteen thousand dollars as some representatives are suggesting. Now, if I can just figure where I hid my magical eight ball, I really need to know what is going to happen with home prices in West Palm Beach.
