While I agree with your premise that prices on vacation homes will fall, I disagree with your rationale for why that will happen. HELOC rates are, for the most part, tied to the prime rate which has been stable for well over a year. There is little to no possibility that the prime rate will rise in the forseeable future, especially after Friday's jobs report. If anything, rates will be dropping, maybe as much as 1/2 point as early as next week.

B,
I should clarify, my broker friends said over the last several years, many of the Helocs and 2nd mortagages they wrote loans for were introductory teaser rates, that will definitey rise or have risen already

Capitulation.

When sellers meaningfully begin dropping prices to unload. This will happen because many are now trying to maintain two mortgages. They either won't, or can't, continue that forever. Approximately 40% of today's SF inventory is sitting empty. That is an historically high number. Record numbers of people were so confident that their house would sell that they purchased a new home before selling their existing home.

Most Americans can't afford to own two homes with mortgages. Any discretionary dollars they have are now going towards feeding a house they no longer live in nor use as rental income. They are just sitting empty. Americans like to buy their toys. They are restricted now because of the double mortgages. Eventually, they will lower the price on that old house so they can get on with buying new toys.

Their price drops will force others who also need to sell because of job transfers, divorce, & even marriage (more singles today own homes) to drop as well. Add to that the foreclosures & new construction inventory & it's clear prices have to fall a lot in order to absorb the inventory in anything less than 3-5 years.

Somewhere around 25% down from the peak, we'll see a bottom. The market will flop around like a dying fish at the bottom for 6-12 months while people regain confidence & then massive pent-up demand will cause home prices to begin climbing again. But, by then attitudes & styles will have changed. I predict the jumbo houses will continue to be a tough sell for the foreseeable future. I predict a glut of white elephants. Signs of changing attitudes are already all around us...smaller cars, smaller homes, reducing our environmental footprint, etc.

Right now, I'm seeing unbelievable stubbornness in sellers. No sign of capitulation here. It's getting painfull to talk with friends who are trying to sell...listening to their justifications of why 'their' house is worth what they're asking & the 'other property down the street' is not worth as much. Painfull, I tell ya! And these are people who do not even need to sell. They just want to move. Not necessarily even move up...just move. They exhibit a sense of entitlement that their house should sell for enough to cover their next dream regardless they've only owned it for 3 years.

Capitulation. That's when we'll see a bottom. In the meantime, the agony will continue. But, eventually people will decide they have to sell & lower those prices. At the right price...everything sells even in Michigan.

/t

I don't really think this will happen, but...

If the Market tanks and/or the FED lowers rates, might we see the Greenspan era all over again? (Can't make anything in the Market; Real Estate is cheap and Financing is cheap; better "invest" in RE.)

tricia, i agree with all except the movment to smaller,less expensive homes..Even the preceived movement to smaller vehicles doesn't exist where i now live...I have an SUV but it is tiny compared to all the shiny new caddillac escalades and Expeditions my neighbors dirve,,when not driving their new Mercedes..Contractors are in 3 of the 6 homes on my street as i type..Sure, prices have come back a bit, but the job market is strong, and people are still spending...In an area where the job base is good and salary levels are strong, the demand for upscale housing will still be intact

qdognj,

I disagree. The concept of what is "upscale" is what I'm saying is going to change. Smaller, leaner, & high quality is what I predict. More geo-thermal heat like Mary has, for instance. Also, renewable woods for flooring as opposed to oak and/or maple. Yacht-like storage efficiencies. Compact & ultra-efficient kitchens using greener materials & cleaner fuels (drats...I love my gas range!). Anyway, I believe that when the real estate market reaches its next upward swing that's what people will be looking for in a new home. Today's upscale homes will be 10-15 years old &...oh horrors...dated. Because I don't believe the real estate market will heat up again for about 5 years, today's 25-30 year olds will be looking at my granite from the perspective of eco-conscious 30-35 year olds & saying..."Oh my, look at all of that granite that was strip-mined. What a blight left on the mountain in order for those counters to be installed! Whatever were they thinking?!" lol

Life doesn't stand still. The world is moving faster than ever today. Styles & ideals are changing in much quicker cycles than the historical 10-15 years.

No, I don't believe a couple rate cuts are going to over heat this market again. First, my DH tells me that the Fed rates don't influence mortgage pricing nearly as much as it did a decade ago. Mortgages are competitvely priced today in large part. For instance, I asked him this weekend if he intended to lower rates next week. He said, "No, why would I? My marketplace will support our current rates. I don't care what Bernanke does. I'll only cut if I need to in order to be competitive with our now greatly reduced competition."

/t

I'll concede on "efficient", and completely agree about styles and ideals cahnging much more rapidly..the "green" concept, while noble, is likley to take hold on a large scale over a long. long time..It is too costly to go "green", and until it makes financial sense, most people won't do so...And why worry about whether granite(for example) appeals to others 5 or so years from now?? Make your improvements for YOUR enjoyment, and don't worry about the futute value of it...I am really amazed at the # of people who worry about such trivial matters..Don't make the improvements if you are concerned about a "future" return, that may or may not ever come to fruition...Once again, my mantra "your home is NOT an investment",enjoy it, spend quality time with friends and family there it is a HOME...

Well, I agree on making improvements that appeal to you but I'm not sure quite where that comment came from? Was it something I said? Maybe, I didn't explain myself enough...I'm a home-hobbyist cook & really enjoy my gas range. It 'pains' me to think that there will be something coming down the pike that will be considered 'better'! rofl

We have used green materials though such as cork instead of hardwood flooring. We've also had our property designated a certified national wildlife habitat. So, no chemicals, fertilizers, etc. which proves that even old dogs like us can learn to be better stewards of our planet.

Green is costly today because demand hasn't yet taken off...but, it will! And when it does, prices will come down. Just as my granite countertops cost a lot less here in Mystic than those in our NH home 5 years earlier. Home shows are already full of 'green' concept products. As people have more exposure to them demand will increase. I believe you're wrong about it taking a "long, long time".

It's fun to imagine what will be available in 10-15 years!

/t

The bottom will be reached when HGTV, DIY network, TLC etc. start bombarding us with "Get This Foreclosure Bargain" shows.

I still go back to my original comment/observation. If there was any statistical evidence whatsoever that empty houses sold quicker or easier or for more money than furnished houses, then builders wouldn't go to the trouble or expense of furnishing their models.

tricia, my remark about doing improvments was not directed at you..Way too many people wait/hesitate to do improvements because of fear about the return they may or may not get sometime in the future..and i will agree that as "green" demand surges, prices should decrease..My "green" improvements have been not using chemicals/fertilizers on my 2 acres of lawn.Mulching the clippings,,replacing my HVAC sysytem with a more efficient one...so, basic changes are in effect here in my home, but there is long way to go, and it won't be any time soon where my home will be solar/wind/whatever new technology powered...

In addition, houses don't seem to fare as well when they stand empty for a long time...probably because no one is living in them and able detect any issues that may occur in in time to nip them in the bud; therefore small issues can go undetected for far longer than they should, and possibly become big problems (e.g. leaks, animals in attic, electrical malfunctions, etc.)

It's sort of like a car...it has to be used every so often in order to keep it in the best shape.

qdog: One of your future "green" projects could be to gradually get rid of the 2 acres of lawn. Start out with an island of native plants (trees, shrubs that don't need water, fertilizer, pesticides)...then let the island expand and add other islands. Before you know it - no more grass cutting/watering. This saves on emissions and saves water.

Yeah, sweet tea...we had to "de grass" our place in order to get our certification. No more than 15% of the site can be turfgrass & we've lowered it below that. So, we've done lots of lasagna beds. The only turfgrass remaining is a ribbon winding/meandering its way around the house about 4" wide.

Also, no invasives like barberry, burning bush, etc. Even on our small site it's made a difference in the wildlife that visits us.

/t

Interesting side note I read today. Personally, I thought it would be higher.

Here is a link that might be useful: Survey: Consumers Aren't Thinking Green

My going Green!!! and Waterfront property :)

I guess what I don't understand about the vacation house thing is - these people were always paying two mortgages right? And these aren't lower income cant' get a fixed rate loan because their credit is bad. So what's changed? Nothing? Are you saying they were able to afford a 675K vacation home only because they got a little bit of a lower rate? That doesn't sound right. Maybe a few ok but I would most people who can afford a 675K vacation home have a fairly good handle on finances and aren't going to put themselves at risk. They just want to sell? A little nervous about the economy? Cuz I don't see why most of those people would feel the need to sell. Unless maybe they are living off stock investment proceeds and when the market tanks their cash flow reduces?
I can see why the prices for high end vacation homes wouldn't come down. They only make so much lakefront beachfront and mountaintop so eventually, if they can ride it out it will be ok. If trhey understand enough to have made that kind of money I would think they understand ride out the lows if you can.

Triciae - when you say 25% from the peak - what does that mean for midwest areas where there really wasn't a peak? I have just started to notice a few price drops here and attribute that to the few people (apparently) that need to sell, although I've seen some empty stuff on the market for 90 days with no price drop. And I just can't imagine that people "bought high" a few years ago here in Dayton. So whats 25% from "normal"?

I'll chime in with my own experience on the environment thing as someone who is not an extremist but does believe in reducing my huge negative impact on the earth if I reasonably can.
Most people are sort of interested when I talk about things like using natives in landscaping and using geo-thermal and commend you for it - but there interest really isnt there unless your talking money, convenience and whats in it for them. When building and my geo-thermal came up the questions started and stopped at "wasn't it expensive and how much did it save you?" Not one person I talked to would have done what I did (and it definately bit me in the butt) which was trade square footage for LONG TERM savings and greener energy. No one cared about the geothermal when I sold my house.
I do home t is right and things change. But I'm skeptical.
It really is: Is recycling pick-up free? I don't have to drive to the recycling drop off? Ok maybe I'll do it. Are natives cheaper than other plants and readily available? Ok well that's sort of transparent why not.
Am I going to cram my family into a "little" house? NO
Oh - the goverment will pay me a huge incentive for putting up a wind geneator? Oh, well maybe. Either people won't be able to afford big houses or not. That's the only way they will voluntarily downsize. JM prediction
Same with cars.
Granted there are pockets in the country that are populated by people who are in it for the planet. Portland OR for example. But your average suburbanite who's making up 80% of the housing market? I NEEEED 3000 square feet for 2 adults and 2 kids.

I agree marys - we have had couples (no children) and retirees look at our 2000 sq ft house (still on the market $30K lower in price now) proclaim that they felt it was not large enough (for the 2 of them). We had 7 people living in there! Granted - several were small children, but still. Our house now is much larger and I can not imagine living in it with a family of 3 or 4 - it would feel so wasteful... as it is it feels a little bit large for us.

Market here (NJ) still so difficult - although for the past few weeks we are getting regular showings which is a big improvement from the early summer. A lot of sellers (my competition) have pulled there houses off or let them expire (if they did not need to sell). Not me - gotta sell...

Everyone thinks they are not affected by the housing market. That's someone else. Some other part of the country.

Here in the far North East - I am not sure you will see people dumping their second/vacation homes, as much as you will see people not buying second/vacation homes. It would stand to reason that those who would use the equity in their primary home to get into a vacation property will not be able to do so as the value of their property, hence equity, decreases during this correction.

So I expect all that money that sellers made on out of staters wanting lake front properties is a vanishing dream. Only recently have I seen some price drops on waterfront but many sellers still think their property is worth "X" and aren't budging.

Sellers here (New England) are stubornly sitting on their prices. We made an offer on one, but the owner refused,to negotiate. So we walked away. It was not cost effective for us, at her price.

What my husband and I are finding is a complete lack of desire to negotiate. Such to the point that I am very hesitant to put in an offer on anything. The last offer we made on a house, we did only at the behest of the seller's agent, it now appears the owner is not going to even look at our offer - and while I understand the family has some important family issues it's dealing with - why ask, why list if you don't want to talk about selling? Just take the place off the market. I am sick of people "testing" the market and not really being committed to selling.

Everyone around here seems insulted at any offer less than the asking price? Or maybe it's just me. We are not from here, maybe we just don't understand.

I am sick of looking at houses. And I'm sick of warming up to a particular house, finally getting the nerve to make an offer and getting shot down. :)

MP

mmelko - I feel for you - but hang in there. I also feel for the some sellers too. Its tough for everyone. As someone who did sell but at a huge loss I could ill afford I understand somewhat, its hard to lose money.
Some sellers may be testing the waters and trying to hang on to profits from the run up I don't know. (I remember one florida poster here talking wondering if they should come down in price and go from a 140,000 profit to a 120,000 profit - if only!) Eventually you'll run into someone like me who wants/needs to sell and that's just the way the market runs. Good luck bad luck.

The bottom will be reached when affordability is restored i.e. median home price is 3 x median income.

I'd surely imagine that a lot of prospective sellers are holding on as long as they can for that turnover profit they expected to get by the automatic market appreciation. ,Even more than that, I expect some prospective sellers do not have much equity at all in their homes because they overbought with creative mortgages and just cannot sell for less than what they owe on it.

I've bought and sold a lot of homes, and never ever did I, or we, (when a spouse was involved) buy anything we couldn't make payments on if one of us became unemployed. We also did not kid ourselves about increasing property taxes, upkeep and repairs, or rapidly rising insurance rates and skyrocketing utility costs. It's often the hidden or unexpected expenses taking owners over the edge.

Total capitulation is the classical definition of a bottom. You cannot put a number on it like 25% from the high. Its more of a psychological swing thing that can happen for many reasons. Generally, if you hear people saying this is the bottom, it probably isn't. Likewise, when you hear everyone complaining that prices are going to go lower and lower and that they will never buy a home again, etc, etc, that is probably the bottom.

Typically you do need some kind of significant price drop to swing a market from down to neutral and I don't know if what we have seen so far is enough. The hard thing with a house, unlike a stock, is that people live in houses and can just capitulate by not selling. In otherwords, there does not need to be a huge price drop. Sure, there will be foreclosures and those that may drop their price to sell, but at some point the inventory will go down low enough that there is more demand then supply.

As for second home indicator, I don't know how reliable that really is. I do have one friend that is highly leveraged that sold is mountain top retreat, but he sold it for about what he could have 2 years ago. I also think that most that own vacation homes probably have much better finances then the average homeowner so just because the price goes down or interest rates go up, isn't going to make them sell.

I do think that the push in years to come will be eco-friendly living. I don't think that necessarily relegates you to a small house but I think that ecoism will be an "in" thing. I also could see some kind of eco rating system becoming a reality for homes, just like they do for appliances today.