Decline in Home Prices

I’m sad to report that national home prices have taken a hit. In the fourth quarter of 2011, national home prices fell 4%. While this might not seem like a big deal, it’s the biggest drop in home prices since 2008. The last time home prices were this low was in 2002. It is crazy to think that we could be back to 2002 levels. This ultimately means that signs of stabilization in mid 2011 did not last through the rest of the year.

Even after prices dramatically fell in 2007 and 2008, the declines over the past few years have been relatively moderate. So why have we reversed back all of a sudden?

Once again, the economy and consumer confidence are still very weak. Clearly, it is going to take more time to fully recover. Just because there are a few quarters of stabilization does not mean that the housing market will remain steady.

Right now home prices are all over the place. It is almost impossible to accurately predict how home prices will hold up in the next few years.

Even multi-million dollar homes are experiencing large numbers of foreclosures and major price declines. According to RealtyTrac, America’s richest families are losing their homes to foreclosures at a faster rate than the rest of the nation. It is a common assumption that these things only happen to low-income families. However, more and more upper-middle class households are forced to sell their dream homes. The problem is that selling your home in a high-end neighborhood is very challenging in today’s market. The pool of interested buyers is very limited.

In my hometown, Corona Del Mar, California, I have seen home prices dramatically fall in the past couple of years. Homes, which were once multi-million dollar estates, have significantly deprecated in price. Last year, more than 36,000 homes valued at $1 million or more were foreclosed on.

My family’s neighbor of more than 10 years has been trying to sell his home for the past year. His house was first listed for $3.3 million. It is now listed for $2.3 million. Most real estate agents believe that homes over the million dollar mark are particularly hard to sell. The market for homes over a million is just not there. If the home does not sell soon, he will have no choice but to proceed with a foreclosure.

With the economy in the dump, my family’s neighbor can no longer afford his home nor can he wait around for the home to sell. He owned 2 restaurants that unfortunately did not make it through the recession. He happened to be in the wrong end of the market. Because of this, he can no longer pay his mortgage payments.

It is sad to witness this kind of thing. He was a very hard worker who spent years building his dream house. He had a lot of his savings tied up in his home. Now, he will end up losing all of that.