Here is he no why the housing market is such a financial pickle.
The current market is still being propped up by government-subsidized mortgages, artificially low interest rates, and a backlog in the foreclosure process. Prices will not bottom out until these props are removed and true market forces are allowed to clear the market. In addition, the California economy is going to get a lot worse. More business will leave the state and more workers will lose their jobs. More people will chose to rent, and many that do will have to have roommates. The vast majority of new home construction is currently taking place in the multi-unit building category, which confirms this trend.
Most people that mortgage will have to increase again. This is Peter Schiff take on increasing mortgage rates.
The market is already on life support, even with mortgage rates at the lowest levels in nearly 70 years. But imagine if rates rose to the levels they were at just five years ago, to say six or seven per cent? What will that do to property values? I think ultimately mortgage rates will rise farther, maybe even above 10%. At the same time, I think the California unemployment rate will continue to rise and taxes in California, will continue to go up. I also think there is a distinct possibility that the ability to deduct mortgage interest from personal income taxes will, at some point in the not too distant future, be curtailed or eliminated, especially for wealthy individuals. What do you think would happen to real estate prices under that scenario? Pretty soon you will not have to imagine this, you will be living it.Read it all