My wife and I need to sell our townhome in Dundalk because we have outgrown it (started a family), but cannot because we bought it in November of 2007 and we owe more on our mortgage than what it is worth. I would love to see home prices rise just a little, but if anything, I hope home values stay where they are for a while so we can close the gap between our mortgage’s principal balance and the prices homes are selling for in our area.

What do people mean when they say we need more affordable housing? Won't falling home prices help achieve that goal?

Let them fall more...Then maybe people will not be house poor, but able to build equity at a reasonable rate, one that may keep in line with "realistic" incomes.

I don't know how people were affording 300-400K starter homes! How did they eat? Is there nothing enjoyable in life to do with one's money, other than pay a mortgage with it?

Higher price + lower rate = X
Lower price + higher rate = X*

You'll have the same monthly in either scenario. Saying lower pricing will make homes more affordable is a load of crap.

The only people who benefit from lower prices are people with massive down payments of 50%+ or positive equity.

It's hard for me to care if prices goes up, down, or sideways. It's all moot. If you home value goes up you're next home will cost more. If values go down you'll owe money so the new cheaper home's discounted price doesn't matter.

Buy a house to LIVE in and ENJOY. If you want to make money for the love of god use an actual investment vehicle and do your own DD.

*Yes in the end you'll pay less interest with a higher rate and lower loan principle.

We need higher inflation (4 percent annually instead of the 2 percent or less we've been having) in order to make nominal housing prices rise. Even if real prices fall another 25 percent, 4 percent annual inflation would help cushion that fall for people who bought a house in the mid-2000s.

There may be two sides to every trade, but if prices continue to fall, it will have negative effects on everyone. Banks will continue to lose the value of their investments, which will create even more "under-water" homeowners in surrounding homes as their values fall. The stability of the economic recovery, such as it is, will falter. Affordability is way up from the peak of the boom. Prices need to stabilize.

Assuming the references are in real dollars vs inflated ones... the only er, rational alternative to substantial increases in wages for the lower levels, such that they can save for responsible downpayments, and have contingency reserves, and similar prudent considerations of an informed and responsible buyer... is a reduction in the market price of homes (and by extension apartments too).

It's that simple. But with a 30-40% oversupply of warm bodies available for every meaningful job that actually needs doing... wages are going to remain low, at current or even more depressed levels than they are now, for some time to come. So that leaves property and other prices as the variable to find some sense of "affordability"; especially when that prudence requires discounting any second income in the home previously counted on as reliable.

At the higher levels of the market the considerations are another matter but not at the level where the people who actually work for a living live.

Another frequent commenter (DarwinRules) and I have often pegged the bottom as being 1999 price levels... but I'm now adding a caveat that most of those properties can justify another 10-20% reduction due to the deferred maintenance and worse that most of those properties have been subjected to by the unscrupulous and the uninformed have done to them in the interim.
----

Remember George?
You...you said...What'd you say just a minute ago?...They had to wait and save their money before they even ought to think of a decent home. Wait! Wait for what? Until their children grow up and leave them? Until they're so old and broken-down that they...Do you know how long it takes a working man to save five thousand dollars? Just remember this, Mr. Potter, that this rabble you're talking about...they do most of the working and paying and living and dying in this community. Well, is it too much to have them work and pay and live and die in a couple of decent rooms and a bath? Anyway, my father didn't think so. People were human beings to him, but to you, a warped frustrated old man, they're cattle. Well, in my book he died a much richer man than you'll ever be! -- George Bailey

It's still a great idea... but it must come with responsible benchmarks and sober calculations.

I wouldn't mind seeing house prices continue to drop, as long as the principle balance on my mortgage drops at the same rate as my home's worth.

For me, it makes me feel better when home prices go up. There is something reassuring about knowing I made a good investment when I bought my house initially. The argument for lower prices makes sense too.

The last couple have years have shown that what's good for the banks is not necessarily good for everyone else. Stop the abused-spouse mindset that they are your friend, or that your fate is in the same boat as them.

If falling prices create defaults, the real loser is the bank, they did away with debtors prisons in this country over 150 years ago, so drop the slave to the bank mentality.

Falling home prices are no different than falling prices for any other basic necessity of life. The cheaper housing gets, the less we need banks to buy them.

The only thing worse than a slave bound by force, is a slave bound by fooling.

I'd love to see prices stay where they are for a while. People who have held their homes for 6+ yrs (the usual standard for how long you should plan to own a home to make it worth the transaction costs of buying) and not used them like ATM's would still be OK. People who just assumed they NEEDED to own or that they'd be able to make BIG MONEY by endless home appreciation aren't people that I'm particularly concerned about from a public policy standpoint.

The idea that house prices should go up forever is wrong.

The next market of home I expect to see fall is the large home market (3000+ sq ft). These are predominantly owned by baby boomers and older Gen X'ers who are going to want to lower their tax and utility bill and also get out of huge McMansions that will need increasing maintenance.

I think in 5-10 yrs, prices on those large homes will be at least a little below where they're at now. It's simply a numbers/demographics thing. People like the abstract idea of owning a huge house and retiring somewhere free of crime/traffic/lots of neighbors. But in reality, they underestimate the transportation, utility, and tax costs of this. To say nothing of the fact that many of those homes were hastily and poorly built.

I'm fully expecting that when we have kids in a few yrs and they outgrow our fairly small city house, we'll be able to snag something much larger with more land at a bargain price.

Thanks, baby boomers. Nice work voting for low-tax politicians who failed to regulate the financial industry and created huge Government Sponsored Entities like FNME.

The problem is people were sold a pipe dream and thought they would get rich off their house. Many people do not know much more than how do their job, people just don't have time to educate themselves in finance.

Unfortunately, the professionals that are relied upon for advice in making the biggest purchase in a person's life take a weekend course (OK maybe a month of weekends) and pass a multiple choice test - real estate agents and mortgage officers.

As someone has said, the truth of the matter is a home's value comes from living in it and will appreciate in lock step with inflation (maybe a point or two above if you are lucky). You are not increasing your purchasing power by "investing" in a home.

People told me I was crazy not buying a house - I have friends that bought in 05, 06, 07. Funny thing though, my net worth has increased - while the "house rich" have seen thousands of "house" dollars go poof! Yet, those house dollars still have to be repaid - who is threw their money away? Don't drink the kool-aid, real estate agents and mortgage officers are in the same biz as selling used cars - maximize the commision!

I hope for a complete collapse back to 1999 nominal prices. Fingers are crossed!

I own my house and dont plan to sell it or buy a new one now, or probably ever.So i dont have much personally to lose or gain either way in that regard.

But i would have to say that one thing that i have always liked about Baltimore was that someone like me could work as a construction laborer and still be able to save up and afford a house.Someone like me couldnt do that in Boston or NYC. And i would like that to continue , so others might enjoy owning a house as i enjoy it.

I now own my own construction business, doing interior demolition on rowhouses and excavating basements.So you would think that i would want prices to rise.But the fact is that my work slowed down way before the official reccession hit.Houses were so expensive that many investors couldnt afford to buy shells. And potential homeowners couldnt afford to buy the houses once they were rehabbed.

Now that prices have fallen, im actually busier tehn ive ever been. Good solid growth is a good thing.But in my opinion , bubbles are never a good thing. Too many people still think that the only probelm with the housing bubble was that it burst. But the problem ran deeper.

So im glad that some sanity has returned to the housing market.And im glad that people dont have to go massivly into debt anymore just to buy a 12 foot by 38 foot rowhouse

Pete, I'm glad to hear you've got plenty of work! When did you see the shift upward start?

Nice post, Pete.

Homes are not "used cars". Even if they were comparable, who wants the car in their driveway going down in value because a neighbor bought a lemon? The fact is that when a house goes down in value, so goes the neighborhood! This affects tax collections as well as the homeowners' ability to build equity, or use the equity smartly, and even impairs the opportunity tosell the home for the amount owed, on it, etc. Home prices must stabilize.

I already own a house, and have no idea of moving any time soon (or I wouldn't have bought a house), so I don't much care where prices go on my own account.

I think there are probably people who would like to own, and who could manage the commitment, but who just haven't quite got the scratch. So I guess it'd be nice for them if prices dipped a bit, so they can get away from the landlord.

Pete From Highlandtown understands more about economics than most PhD economists.

CBS News recently ran a story on revival that is going on in Detroit because real estate prices fell so far that businesses started opening again.

Adam Smith observed that, broadly speaking, the output of an economy is split between 3 main categories: landlords in the form of rents, owners in the form of profits, and workers in the form of wages. The fewer resources that are diverted to rent (and it's rent even if you're paying the bank), the more resources are available to increase REAL wages and thus lift the Wealth of the entire Nation.

The mercantilist policies of Smith's time were made from the perspective of the producer or the seller. The capitalist policies Smith proposed were to be made from the perspective of the consumer or the buyer. Capitalists like low housing prices, as opposed to American Ponzi-banker corporatist shills, real estate agents and property flippers who like expensive, inflating housing prices.

Jamie Smth Hopkins

I do much of my work in SouthEast Baltimore.And the first 6 months of last year were so bad that i was going to virginia to work for a friend. I only did two jobs that lasted a week a piece in the first 6 months of last year.

But i was working 10-14 hours a day, 7 days a week for the final 6 months.Partly this was because i used my time off to put my business card under two thousand vacant houses[ and there are over 2,000 vacants in the" good" parts of Baltimore]. So i was able to get some new customers that way.

But i defintly have noticed much more rehabbing in the Highlandtown area since December. Houses that are considered "shells" are pretty cheap now.So rehabbers are snatching them up.

The investors that i work for, are selling thier houses pretty quick.But they arent getting the price that they used to get.But they are still making money.

New housing is another matter.Im glad that im not in that sector.Especially in a state like Nevada or California.

In Baltimore there are thousands of abandoned houses that need an interior demolition.So there is plenty of work for guys like me to do.Its just a matter of the City and absentee property owners selling the abandoned houses.

In places like Nevada though, not many construction workers are going to have work there , until the huge surplus of houses is sold off.

Thanks, Pete. That's very interesting, and I think you're right about the split between the work available in the city and in the (largely suburban) new-home sector -- a lot of jobs were cut in construction the last few years. (Here and elsewhere.)

I always find your comments really insightful, and I'm obviously not the only one, judging by the responses from other readers.

Soon after I bought the (more than 100 year-old) house that I currently live in (back in 1995), I heard the then-mayor of Frederick comment that most of the houses in Baltimore City that were a century or more old at that time would still be standing and being lived in when the 'new' and 'modern' houses being then built in the suburbs were being torn down as a precaution to their just plain falling down and injuring someone due to 'old age' and decrepit condition.

The 'value' (aka price) of the house I currently live in has seen many price ups and downs since it was built. Since I don't plan on moving in the near future, I can't say that I really care what happens to the 'value' (aka price) of the house in the next few years.

Josh, don't assume that debtors' prisons are extinct:

http://consumerist.com/2011/02/lawmaker-tries-to-stop-modern-day-debtors-prisons.html

http://consumerist.com/2010/07/ftc-to-take-a-closer-look-at-debtors-being-thrown-in-jail.html

Yes, the Minneapolis Star Tribune did an enlightening investigation into people jailed for debts: http://www.startribune.com/local/95692619.html

Disturbing.