FISCALLY FIT: How Low Will Home Prices Go?

Personal finance writer Terri Cullen went house hunting with her sister in N.J and they found that houses for sale on every block, My sister Peggy saw the same thing as well. Declining house prices versus a year ago, vacant homes for sale (an indication that the original purchase was likely speculative), and a willingness among sellers and agents to consider offers dramatically below their asking price.

In article she uses her sister as a case study, Ms Cullen demonstrates that incomes haven't kept up with house prices, and with mortgage rates now rising, the affordability of a first time home is lower. She concluded, don't buy now; wait until the spring. Separately, Freddie Mac reported that the average 30-year fixed rate mortgage rate fell by 0.4 percentage points last week to 6.43% (I know because I work on the Agency bond desk).

The headline is pretty deceiving. In no way does her article answer the question of how low house prices will go. All it suggests that buyers should wait longer before buying. I've recently read something about the REOFs These Real Estate Opportunity Funds, and they are too rich on the side lines for the housing market to fall sharply. I can't foresee a 1929-style stock market crash hitting the housing market. Watching housing prices fall 50% or more in a few months or over a few years is simply not going to happen.