What I don't get is why aren't housing prices falling even further? In my recent memory (I moved to US in 2000) house prices rose by 200-400% and they haven't fallen nearly as much lately.
A decent houses/condos in all interesting US metro areas are still in $400K+ range, which is absolutely insane, considering median family incomes.
Even most financial planning books/sites will tell you that it's "normal" to spend about 30% of your after-tax income on housing. WTF? Since when it's been "normal"?
Anchoring. It takes time for people's expectations to adjust to a new reality. Folks are still saying "Well, if I can't sell for $400K [or $1M in my neck of the woods], I'll just take my house off the market and wait for the market to turn around." This'll continue until they realize that they're paying more in taxes and mortgage payments than their house is likely to appreciate in the forseeable future.
A good leading indicator for home prices is home inventories, which are still at record levels (though they've seem to have stabilized for now). The inventory report is a measure of how many homes are nominally on the market but aren't selling because the price is too high - the price has to adjust downwards until inventories reach normal, frictional levels.
The mortgage bailout is an effort to keep people in houses, even if they can't afford them. It keeps homes from going back on the market where competition would further lower the price level.
The Bush attempts to buy stock directly in the two Fannies are almost equally embarrassing, being a bailout of shareholders that in no way affects the viability of the business, which is guaranteed by the government anyway. Let them all go broke.
The prices are actually only falling in areas where it's possible to build more houses. In those areas, the price of housing must eventually fall to the marginal cost of production. In areas where zoning laws and density make new construction very difficult ( Boston, San Francisco, Seattle, New York) housing prices remain very high. Houses have essentially become collectibles ( like paintings or baseball cards). Because you can't create more of them, the price holds up against an inflating dollar.
Even most financial planning books/sites will tell you that it's "normal" to spend about 30% of your after-tax income on housing. WTF? Since when it's been "normal"?
30% of after-tax income doesn't sound unreasonable to me. Given that:
(a) in most areas there's more people than blocks of land in nice places, and
(b) living in a nice place makes a very significant difference to your quality of life
it makes sense that people are going to be willing to pay a significant fraction of their income in order to live in a nice place.
The only problem is the places where you can no longer buy a house on ~30% of the average local income. That's not sustainable.
A decent houses/condos in all interesting US metro areas are still in $400K+ range, which is absolutely insane, considering median family incomes.
Even most financial planning books/sites will tell you that it's "normal" to spend about 30% of your after-tax income on housing. WTF? Since when it's been "normal"?