Old Man Cap

Calculated Risk – Fitch Projects additional 25 percent House Price Declines (real terms)

PIMCO, Phil Gross – MOOOOO

From the above articles, there looks to be an additional 33% decline in real prices over the next 5 years for San Francisco.  This is good news for those saving to buy a house in 5 years but bad news for everyone else. If you buy now and the prices sinks down 33% over 5 years, you’ll have negative equity even with a 20% down payment. Negative equity is a usual stop along the way to bank foreclosure. This is bad news for those looking to buy now.

The above graph is from PIMCO. See where we are right now at the beginning of a small cliff and how much farther down we have to go through 2010.

PIMCO’s Phil Gross argues that the best way to stop the coming decline is to restore affordable credit. Unfortunately, while Federal interest rates have declined from 5.25% to 2%, mortgage interest rates have risen from 5.5% to about 6.5%, currently. The way to do this is through some sort of legislation. He seems to be in support of the brand new housing bill that’s going on through, but I’m unsure as to how that will affect interest rates (I don’t know).

The other amusing solution that he throws out from a friend of his is the Government buying 1 million new/unused homes and blowing them up to reduce supply. This would likely work economically, but certainly not politically.