I lived through this in the 80's in Texas. I live in the Dallas area and my home was not worth what I paid for it in 1983 until about the last 1990's. Home prices here are still very cheap. You can get a very nice newer home for under $200,000 and a mini mansion for $400,000.

I linked that article in because I get the impression that there are a lot of people who don't really understand what forecasters mean when they predict things like the housing market rebounding in 2008 or 2009. It doesn't mean that prices will be back to 2005 levels - that could take years.

Since you seem willing to explain, can I bend your ear for a moment?

I do not have any financial background other than handling my own and my family's finances. So please bear with me. I'm trying to understand what this mess is about without all the fancy words/numbers that seem to confuse more than clarify...

As I understand this housing bubble, it means that a whole lot of folks bought a whole lot more house than they could afford, based on loans that were at best, unrealistic to sustain in the long haul. Then something happened.... rates changed, ARMs reset, something, and a lot of those folks went into foreclosure. When the houses started foreclosing, people started trying to sell their houses before they went into foreclosure, and since the foreclosures are being sold for whatever is left of the loan.... those that were trying to sell before foreclosure have had to lower their prices and may not be able to get enough money to satisfy the laon, so they go into foreclosure as well..... OR maybe it's just the amount of folks willing to pay that price reached critical mass, with all those folks already in houses, leaving none to buy...... whichever it is continues the downward cycle. It's kind of like a tornado, since all those who would normally be selling, and don't have a problem paying their mortgage, still have to lower their price to be competitive. Thus giving them less to buy another house in another location with.

The "bottom" as I understand it is when the prices stop having to be lowered to attract a buyer. Possibly when the cost of a starter home comes back into line with what the majority of the folks in the area can truly afford based on their salary, not creative financing.

This imaginary line is not the one where all the housing prices somehow magically readjust to the amount a lot of folks paid for their homes. This is just the point where it stops going down. After we reach the imaginary line, prices may begin to slowly (like it should have done all along), begin a climb to normal. Taking anywhere from 2-3 years to more likely 10-15 years to reach the before crash amounts..

Now to my way of thinking, the "bottom" will be below "normal" rates.... I'm sure someone out there figured out what percentage of increase in value was "normal".... because those who are sitting back watching, will have to be enticed to start buying again. They will be a little gun-shy so to speak.

As far as I can tell, the bottom is impossible to predict. There are simply too many variables. Sellers hunkering down to ride it out. How the banks handle the foreclosures including their tendency to not want to lose the money they have invested. Interest rates. Buyers determining when and at what price they will buy. Sellers forced to sell at prices that they would never have considered without the bank on their doorstep demanding payment. Even the cost of food and fuel putting a dent in what is affordable for many folks. Or unemployment numbers. Way too many variables.

Because of those variables, it may be quite some time before the housing prices that have been artificially raised (through all the folks now in foreclosure) will get back to "normal" prices, and longer to get back to what folks paid for houses recently.

Have I gotten any of this right? Am I close?

I think the loan/arm thing is only small part of the big picture.
Jobs moved to China.
People went to work for builders who were building like mad
or they worked for remodelors as everyone watched HGTV
so the job market still looked ok.
People bought new houses.
Builders overbuilt
Now there's new and old inventory on the market.
People aren't working because the building/remodeling
market is tanking
People are going into foreclosure because of jobs and arm/resets

Obviously is much more complex but I think this is part of the puzzle that doesn't get mentioned and should.
When I moved to Omaha 4 years ago I was amazed and confunded by the amount of building going on. The whole town was just one big pyramid scheme of building it seemed. I mentioned it to my realtor, this can't be sustained there just aren't enough people living here and she poo poo'ed me. Now Omaha's market is still ok, not as good as it was. They've had the railroad and some other business move in so the city has lucked out a bit. But I know several people who worked for builders who are trying to unload their houses.

Our market is a little different but as sales plummet elsewhere, it begins to hurt at home. Median prices are up but sales slow, as out-of -town buyers struggle to sell their homes.

Here is a link that might be useful: B.I. market

I didn't like that particular article that much but since it was brought up as a springboard for discussion-

In my area there are the same jobs as five years ago and nearly the same wages to go with them too! Even if you happen to have a wage that has been adjusted for "inflation" as seen by the government it doesn't do much for you when sellers think that the value of their house (actually the bank's in most cases) is appreciating by over 15% a year - its like swimming up a waterfall.
Two years ago many people assumed (and to date they are probably correct as there has been no meaningful correction here...yet) that if they didn't buy then they would never be able to - this forced many (maybe 1/4 or more of a generation) to buy before they were ready - if it kept up they could have saved until they were near elderly and not even make a down payment. That mindset is why prices shot up - but the terrible thing is that it is lingering on even after it has been proven to be a fallacy - ex: I bought my house for X (which is irrelevant) put Y amount "into it" (also irrelevant -I usually assume that includes normal maintenance - which includes some "upgrades") it is at least worth X + Y + 'at least' 50K+++ - and if the seller really was Frank Lloyd Wright that would certainly be reasonable - although if it were a pyramid scheme (as mentioned by marys1000 above) someone would eventually get left holding the bag.

I believe that if a recovery of the realestate market is in the making (after it truly crashes - who believes that it can't get worse?) it will have to wait for wages to end their stagnation (realestate is obviously local) because it won't be the hot "investment" for a loooong time and should never have been.

One should keep in mind that only around 30-40% of homeowners who are notified of foreclosure, actually do end up losing/walking away from their homes. There are two separate markets here - one in which investors speculated and do not live in the homes they purchased, and the other where the owner is in fact resident on the property.

Speculative home purchases are well over 50% of the trouble loans in the top three states with the greatest foreclosure difficulties. Like the RE agent in Florida who is walking away from 16 condos he bought, there is no reason to feel sorry for him - he gambled and lost - and the condos will eventually be absorbed into the market, either by sale or rental.

RE always rebounds in a cycle. Usually every 7-8 years.

Using 2005 as the first year of a slow down, it doesn't look as though RE market will pick up any time soon - 2012? I hope I'm wrong.

Those who don't need to sell, stay put & ride the wave. It will ge t better.

There's more to this than just home value. When Ma and Pa Homeowner feel confident about their net worth, they spend. When they don't have that confidence, they (eventually) stop spending. Right now they are still in denial and are continuing to spend. That's going to stop. Then what is the picture for our economy -- sustained 65% by consumer spending?

The 3% 'core' inflation is virtually meaningless to many Americans. It's the much higher inflation in food and fuel that impacts us all. We all have to eat and pay for energy. Most of us don't HAVE to buy a new car or anything at the mall -- or remodel or buy a new house.

The 'new jobs created' barely covers the number of jobs lost by attrition. Many of them are low-paying service jobs -- where you have to hold three of them to survive.

The whole economy is going to pay for the lack of oversight in the mortgage industry that created this now-collapsed Ponzi scheme of ARMs and CODs to finance them. Now the Fed is going to bail 'em out with another rate cut. Wonder what the next best scheme will be that we'll all pay for...

>>Wonder what the next best scheme will be that we'll all pay for... Not as much as the taxpayers paid to bail out the wealthy in the Savings & Loan mess. And certainly not anywhere near as much as we'll eventually pay to prop up the Pension Guaranty fund. The latter especially because there is no penalty for companies to dump their pension obligations on the government when they file bankruptcy.

Also, according to realtor.com, average housing starts for 2007 are 1.4 million houses per month.
Does the US population grow so much as to need 1.4 million new houses each month??

Also, according to realtor.com, average housing starts for 2007 are 1.4 million houses per month.
Does the US population grow so much as to need 1.4 million new houses each month??

I don't know about population growth and that does sound like an amazing number but I see lots of reasons beyond growth for housing demand: people move from rentals to homeownership, from condos to single family homes, from old homes to new homes, they move from one city to another, couples separate and divorce (so maybe 3 home sales involved there), couples marry (so again maybe 3 home sales involved), people retire and move to smaller homes (we have lots of 55 and older communities here). So I see lots of demand for housing even without a population growth, especially when not everyone is a homeowner yet.

Speaking of the past, here's a link that chronicles (via news headlines) the last boom/bust: Click here.

Notice how familiar they all seem now. Here's a sampling:

Housing Sales Boom Keeps Inventories Slim
DICK TURPIN; Los Angeles Times (pre-1997 Fulltext); Aug 24, 1986; pg. 1

Unlike Stocks, Home Prices Rarely Collapse
JAMES FLANIGAN; Los Angeles Times (pre-1997 Fulltext); Aug 28, 1988; pg. 1

J. M. Peters Reports Skyrocketing Sales for Second Quarter
MICHAEL FLAGG; Los Angeles Times (pre-1997 Fulltext); Sep 14, 1988; pg. 5

Hot Housing Sales Belie Doom Forecast
Ryon, Ruth; Los Angeles Times; Sep 25, 1988; Vol. 107, Iss. 297; 8; pg. 1

(the drop starts, first in sales #s, then in price)

State's Home Sales Drop 14% Median Price Tops $200,000 for First Time
Crouch, Gregory; Los Angeles Times; May 25, 1989; pg. IV1

Realtors Tackle New Topic: How to Handle Slow Housing Market
Myers, David W; Los Angeles Times; Oct 1, 1989; pg. VIII1

Prices Drop, Sales Slow in State's Housing Market
TOM FURLONG; Los Angeles Times (pre-1997 Fulltext); Nov 29, 1989; pg. 1

Home Sales in July at Slowest Pace in 4 1/2 Years
Furlong, Tom; Los Angeles Times; Aug 28, 1990; Vol. 109, Iss. 268; D; pg. 2

Realtors Hear Gloomy Price, Sales Forecasts
Myers, David W; Los Angeles Times; Oct 7, 1990; pg. K1

O.C. Home Resales, Prices Fall Sharply Housing: Realtors group attributes slump in county and state figures to fears of recession.
MICHAEL FLAGG; Los Angeles Times (pre-1997 Fulltext); Oct 26, 1990; pg. 5

(are we at the bottom?????? LOL)
Reading Signs--Is Market at Bottom?
Inman, Bradley; Los Angeles Times; Sep 8, 1991; pg. K1

A sad Westside story: Home prices have declined up to 50% since late 1980s
Myers, David W; Los Angeles Times; May 28, 1993; D; pg. 1

It's a Buyer's Market as Peninsula Home Prices Tumble Real estate: Younger families are taking another look at an area that was once beyond their economic grasp. This could revitalize the school district.
TED JOHNSON; Los Angeles Times (pre-1997; Jun 24, 1993; pg. 3

excellent link skylyn, bookmarked. This just proves that our so called 'real estate experts' have no clue and so does MSM. Their predictions are as good as mine and yours.

None of the 'experts' saw the bubble and the coming crash so what makes them think that they can predict the bottom and turnaround.

There are some very artificial pricing structures in our society. Diamonmd, for one. You buy a diamond at the price one of two or three major companies sets. The companies who sell the diamonds from those companies 'guarantee' the price---but only if you bring it back to their store and buy another of greater value. Try selling that diamond somewhere else for that same amount.

Housing pricing was a modified pyramid scheme for years. Prices increased due to the price of materials and labor, but the actual value was artificial---depending on location and the overall market. Instead of staying in a home for twenty years, families bought into the buy/build equity/sell/buy bigger/build equity/sell plan that only worked if equity rose quickly. Enouhg people bought into that scheme---so it did work---for a while.

But, since the whole basis of the scheme was artificial, it was not sustainable.

Plus, peolpe bought much more than they could afford---relying on the 'system' to bail them out.

I built a brand new house in 1978, lived in it for the recommended 7 years---and could not sell it at much of a profit, much less enough to get into a bigger, more expensive place. I paid $47,500 when built---and it finally sold for %52,900---seven years later. Reason? Not the right location---a series of builders just capitalized on the 'system' and the public went along trusting that 'system'.

So, now I am going to be a buyer---in about 4 months. I will get a super deal---probably from someone who is getting much less than the 'system' once dictated. In fact, I am keeping an eye on two places---both on the market for a long time---both empty---and will make my first offer much lower than the advertised listing.