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The Benefits of the Housing Slump?


The current real estate situation (this is updated as of February 2012) is still not that great for real estate; and the last thing most people think about are the benefits of the housing slump. There are big problems for individuals, ranging from difficulty getting loans to being "upside down" on ones mortgage (owing more than the home can be sold for). On the other hand, there is a bright side to the dropping prices as well.

Don't we normally love the idea of lower prices on anything? We would love to see a 25% decline in the price of cars or groceries. Housing is different because we use it but don't "consume" it like other things. In addition to providing shelter, it's an investment that we may someday sell. If you spent your whole life in a house the value could fall by half without hurting you at all. You might even get to pay less for property taxes and insurance. This suggests two of the benefits of the housing slump:

1. Lower expenses.

2. Lower prices.

If you haven't bought a home yet, this is an opportunity, right? They just went on sale for as much as a 40% discount from where they were priced just two years ago. Time to start shopping. Also, with lower prices you get lower payments, lower insurance, and lower property taxes. The latter two are benefits to existing home owners as well.

Are there any other benefits to the housing slump if you already own a home? There may be if you've ever thought about moving up into a more expensive home. It may seem terrible that your own home is worth $30,000 less than it was three years ago, but what about the bigger home you dream of? That one could be selling for $50,000 less that a few years back, and that's an opportunity, isn't it?

Those are some of the possible personal benefits. Then there is the long-term benefit for society that comes from the whole housing mess. First, prices are getting back in line with what is actually affordable, so many people with ordinary jobs may once again be able to buy a home. This new buying interest means that prices may stabilize before long.

Prices just went up too far and too fast. Some (perhaps most) who bought those half-million-dollar starter homes in California never could actually afford it. Buyers were speculating, hoping to hang on long enough to sell for a profit a few years later. Our crazy housing market made gamblers out of home buyers, and the last ones to join the game lost the most. This suggest one more benefit of this housing slump: important lessons we needed to learn.

What did we learn? Zero-down loans really don't make sense. Neither do interest-only loans. And negatively amortizing loans were just insanely risky for homeowners and lenders. Reaction to these and other mistakes in finance may go too far, but the lessons of this era will be remembered - at least for a while. That hopefully means there won't be a repeat of the run-up in prices based on outrageously easy loans. It might mean there won't be another huge housing slump in our lifetime, nor another banking crisis as a result.

(2012 Note: It has been recently reported that as many as 50% of sales in Florida are all-cash. This could be an indication that a bottom is near, as cash investors move in to buy up excess housing supply.)

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Houses Under Fifty Thousand | The Benefits of the Housing Slump?