This is an update on a blog I wrote a couple months ago. Then I stated that some homeowners who could afford their mortgage payments were walking away because of the loss of value. Owing more than the home is worth is causing many to allow foreclosure and walk away. Now, there is a new study which discloses that fully 25% of foreclosures are people who could continue to make the payments but have made a strategic decision NOT TO! Wow, this is much greater than I originally thought. And the study indicates the problem is GROWING. Moral restraints are lessening because there are so many foreclosures and being foreclosed has lost some of its "black cloud". This only adds to the problem of declining values because of foreclosures, the more foreclosures the lower the home values go. Not since the great depression have so many homeowners owed more than their home was worth, so, many are just moving on. This is regrettable on any level.

Another effect of the housing boom that peaked in 2005 is the lowering of standards and quality built into these homes. Construction defects increased with the boom and now many people are finding serious problems with their homes. Foundation problems seem to lead the list, followed by water penetration and mold. A lack of skilled workers, short cuts, a rush to make money and an overwhelmed government policing staff all lead to this disaster. This has left many with homes that repairs would cost more than the home is worth. One example is a lady in Minn whose home needs $228,000 to repair and the home is only worth $190,000 when repaired! Foundation problems can be very expensive and sometimes not even repairs can solve the problem. Many builders faced with these claims simply declare bankruptcy and go on leaving the homeowners holding the bag. Most home warranties are only good for 10 years, after that, you are on your on. Also many contracts for new homes contained clauses the required the homeowner to first allow the builder to make the needed repairs, and if not, for the whole action to go to formal arbitration before the homeowner could even file a legal action. The time consumed by this process pushed many people beyond the 10 year warranty period and thus, no protection. I hope you had an independent home inspector go over your new home before you signed on the dotted line. I have found over the years that new homes were found to have more problems, and certainly, potentially, much more severe problems than home years older. Buyer beware!

It appears that appraisals are becoming a drag on home sales. Appraisers are caught between the proverbial "rock and a hard place". How do you give a "fair" appraisal for a nice home in a neighborhood with foreclosed homes being the most recent sales?? In a normal market this was not a problem because there was always other comparable sales in the subdivision. Now, the appraiser may have no "regular" comps to go with. And the foreclosures are sure to be low priced. If a normal seller finds a buyer, it may be impossible to get a high enough appraisal to clear the lender. Many sales are falling apart for this very reason. Just more bad news for regular sellers! How do you compete with foreclosed homes. If you are not in foreclosure, how can you get a "fair" appraisal on your home?? The appraiser fears loosing his creditability and very job if he goes too high on any home, yet the seller cannot compete with the price of foreclosed homes. I have no answer but something is needed or "good" homes are going to linger on the market or sell at unfair prices.  

A new survey, this week, reports nearly half the participants no longer believe home ownership is a realistic way to build wealth. Wow!! I know the last few years have been unkind, to say the least, on home ownership. I know many, if not all homeowners, have lost some value in their home. Even this loss simply takes them back to where they were in the early to mid '90's. Think about it, what other "investment" gives you a roof over you head, a place to sleep, raise your kids and enjoy, yet still has a very good chance of actually increasing in value. What alternative is there? Renting is certainly not going to increase your wealth, living in a cave or with mom & dad is not going to help you retire. People invested in the stock market did no better, and probably worse, over the last few years. For the life of me, I cannot think of a better place to put your money. The main reason homes have increased in value has not changed. Our population continues to grow and they are not making any more land, so what land exist is all there is ever going to be. If you own even a small, less than 1/3 acre of land, under your home, I believe the value will go no where but up as time goes on. More and more people are looking for something that cannot be created so where can prices go but up?? Home prices will return to past levels and go up from there, supply and demand will make sure of that. That's my word!   

The chart below most clearly illustrates the decline in new home sales of the last few years. The chart is hard to read here because I has to shrink it so it would fit. But, for your info, new home sales peaked in 2005 at somewhere around 1.35 million unit per year. They are now running around .2 million per year. Wow! What a drop! Will we ever see that 1.3 million units per year again?? I doubt it in the short run (2-4 years) but I do believe we will increase greatly over the current 200,000 unit per year. Demand has certainly not declined that much, just the uproar over homes prices and availability of credit.