possibly noteworthy wrote:
While some analysts have argued that home prices need to fall to "clearing prices" that will attract more buyers, price declines could also complicate any recovery by pushing more borrowers under water.
I'm starting to get annoyed with the analysts who are talking about how prices are too high. I felt fairly confident buying my place because at the time, the mortgage payment was comparable to the rent you'd pay on a similarly sized place in the area. Not anymore. Zillow provides a suggested rent payment and an estimated mortgage payment at current interest rates given their sales price estimate for the place. The suggested rent is nearly twice the estimated mortgage payment. What this means is that you could buy my place at the current market price and then rent it out for a yield of 80% or more! Anyone currently renting stands to save a significant amount of money buying at these prices. Anyone looking for an investment opportunity stands to make a handsome profit. This means that prices are not too high. Prices have fallen way, way below where they are supposed to be. Commentators who talk about the need to reach "clearing prices" are not providing useful insight into the situation. We're way past any reasonable concept of a "clearing price" in this market. And prices are still falling. There are several factors:
1. Economic growth: Atlanta is not growing right now, so there is less need to consume homes.
2. Gridlock: People stuck underwater in their house can't move and so the whole market gets gridlocked.
3. Availability of credit: There are perfectly responsible potential home owners who are not allowed to buy right now because credit restrictions have become more strict than they should be.
4. Fear: No one wants to try to catch a falling knife. But the number one factor in my mind is foreclosure sales. They are a race to the bottom - past the bottom - with each bank trying to offer their places cheaper than the next bank in an attempt to avoid the load associated with holding onto the properties through a normal sales cycle. This process feeds itself - they've driven the prices so low that the prices are a catalyst for more foreclosures - people who need to leave end up foreclosing because they cannot compete with bank prices. Ultimately, it is the banks that suffer. They're going out of business at unprecedented rates. The banks aren't going to change tactics until the people who run then - the economists - recognize the reality of the situation for what it is and start making useful recommendations. Instead there is this constant drum beat of "prices are too high" and so financial institutions act accordingly. Its madness. | 
