Credit Scores Getting Worse: Another Reason The Housing Market Will Decline Further and Then Stay Down

Credit Scores Getting Worse: Another Reason The Housing Market Will Decline Further and Then Stay Down

According to this article, Analysis: One-Third of Americans Highly Unlikely to Qualify for a Mortgage Today, 29.3% of Americans has a credit score under 620. This means that almost 1 in 3 Americans cannot qualify for a mortgage loan right now. This is yet another reason why the housing market will decline further: too many potential buyers are eliminated from the buyer pool due to poor credit. By the time this housing market decline is over the percentage of Americans with poor credit will likely increase to as much as 35% to 40%. In addition to that, nearly 50% of Americans will owe more than their home is worth (see SCARY STUFF: About half of U.S. mortgages seen underwater by 2011) and there is just no way buyers can come back into the market in a big way absent a substantial decline in home prices, which would allow new buyers into the market. Therefore, even when this housing market decline hits a bottom there will be no driver to push home prices back up resulting in more of a "thud and muddle" rather than a "V" recovery (also see: The Truth About Home Prices). As a result of this there are going to be a high level of foreclosures, short sales and other distress sales for the next several years.

Short Sale and Foreclosure Help and Assistance for Homeowners and Property Owners in Nashville TN and Middle TN. If you are a Nashville Tennessee, Franklin Tennessee, Brentwood Tennessee, Nolensville Tennessee, Spring Hill Tennessee, Murfreesboro Tennessee, Smyrna Tennessee, La Vergne Tennessee, or Middle Tennessee homeowner, property owner, condo owner, real estate investor, home builder or real estate developer who cannot pay your mortgage payments (due to losing your job, having your income reduced, illness, health problems, adverse business conditions, slow sales, loss of investment property tenants, vacancy issues, lack of funds to complete the project, feuding business partners, etc.), know that you will not be able to pay your mortgage, have defaulted on your mortgage, are already in foreclosure, or owe more than your home is worth, please contact me to discuss your options including a loan modification and a short sale (a real estate short sale occurs when the sale proceeds are not sufficient to pay off all the mortgages and liens on the property/home). I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR, Expert and Real Estate Investor. I primarily help sellers (homeowners, property owners, condo owners, owners of high end homes and properties (estate homes, luxury homes and executive homes), real estate investors, home builders and real estate developers) of distressed real estate, short sales, pre-foreclosures, foreclosures, investment properties, failed new construction projects and struggling commercial real estate developments located in Middle Tennessee (Rutherford County TN, Williamson County TN, Davidson County TN, Robertson County TN, Maury County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN, Belle Meade TN, Nolensville TN, Spring Hill TN, Gallatin TN, Springfield TN and Mt. Juliet TN). If you do need to short sell your home or property, or you need a quick sale due to being in foreclosure, you can request short sale and foreclosure help and assistance on my website at Get Short Sale and Foreclosure Help and Assistance from a Nashville Tennessee and Middle Tennessee Short Sale and Foreclosure REALTOR, Real Estate Expert and Real Estate Investor.

The Truth About Home Prices

The Truth About Home Prices
Median Single Family Home Price to Median Family Income Ratio Over Time (1/1989 to Present)

As you can see on the graph below, Median Single Family Home Price to Median Family Income Ratio Over Time (1/1989 to Present), the current Median Single Family Home Price to Median Family Income Ratio ("Ratio") is higher than at any point during the entire period evaluated except for the 2002-2008 housing bubble. The problem is that unemployment is higher that any time except for the prior few months. The question is : How can home prices, per the Ratio, be relatively higher than any non-bubble period when unemployment is extremely high and foreclosures are at record levels? The answer is: artificial government housing market propping. Once this market propping is over the organic (and true) housing market will become clear. That clarity will show that housing prices will decline as soon as this artificial government market propping ends see my previous blog post: Home Prices Headed Down.

In short, housing prices will continue to decline because current housing prices still do not reflect the current economic reality: the economy is poor, but housing prices remain "average". This simply does not make sense. This is not my opinion, but, rather, is proven by the facts. I analyzed the data in the NAR Home Affordability Index (HAI) from 1/1989 through 7/2010 and found that the Median of the Ratio of Median Home Price to Family Income is 2.92 and the Average of the Ratio of Median Home Price to Family Income is 3.07. Over this same period, the lowest reading occurred in 12/1990 at 2.654. Therefore, it is safe to say that from an historical perspective the typical price of a median home should be about 3 times the median family income. The 7/2010 reading was over 3 at 3.032 (i.e. over 4% higher than the historical median and about the same as the historical average). The problem is that we are not in a “typical” economic environment – we have record foreclosures that seem to persist and near 10% unemployment. Given that the lowest reading of 2.654 occurred in 12/1990 and that our current economic conditions are far worse than 12/1990, it is logical to conclude that the Median Home Price to Family Income Ratio should be below 2.654. If the ratio declines to 2.5, home prices will decline by over 21%. If the ratio declines to 2.5 and family incomes decline by just 5%, home prices will decline by nearly 28%. Given that personal incomes are declining and that a 2.5 ratio is probably a bit optimistic, I believe it is very feasible that home prices will decline by an additional 30%. As a result, there will be more short sales and foreclosures. See the graph below for a representation of the Ratio of Median Home Price to Family Income Over Time and how it compares to the Average and Median of that same Ratio.



The graph shows that houses are still overpriced when compared to incomes. Keeping homes overpriced by artificially allowing more home buyers into the market and encouraging other home buyers to purchase more expensive homes (because of artificially cheap money) is completely irresponsible. Why should Americans be happy about being forced to overpay for homes (due to having to compete with home buyers who should not be home buyers, but only are do to the "government housing stimulus" described above) - that only leaves less money available for saving, investment, non-debt spending, etc. In short, it makes it harder and harder to get by on their current incomes. The American Dream is being killed by unnaturally high home prices, which are made possible by irresponsible government housing market propping. The government should just let home prices fall to where they should naturally be given the current economic situation (i.e. a lot lower than they are right now).

Short Sale and Foreclosure Help and Assistance for Homeowners and Property Owners in Nashville TN and Middle TN. If you are a Nashville Tennessee, Franklin Tennessee, Brentwood Tennessee, Nolensville Tennessee, Spring Hill Tennessee, Murfreesboro Tennessee, Smyrna Tennessee, La Vergne Tennessee, or Middle Tennessee homeowner, property owner, condo owner, real estate investor, home builder or real estate developer who cannot pay your mortgage payments (due to losing your job, having your income reduced, illness, health problems, adverse business conditions, slow sales, loss of investment property tenants, vacancy issues, lack of funds to complete the project, feuding business partners, etc.), know that you will not be able to pay your mortgage, have defaulted on your mortgage, are already in foreclosure, or owe more than your home is worth, please contact me to discuss your options including a loan modification and a short sale (a real estate short sale occurs when the sale proceeds are not sufficient to pay off all the mortgages and liens on the property/home). I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR, Expert and Real Estate Investor. I primarily help sellers (homeowners, property owners, condo owners, owners of high end homes and properties (estate homes, luxury homes and executive homes), real estate investors, home builders and real estate developers) of distressed real estate, short sales, pre-foreclosures, foreclosures, investment properties, failed new construction projects and struggling commercial real estate developments located in Middle Tennessee (Rutherford County TN, Williamson County TN, Davidson County TN, Robertson County TN, Maury County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN, Belle Meade TN, Nolensville TN, Spring Hill TN, Gallatin TN, Springfield TN and Mt. Juliet TN). If you do need to short sell your home or property, or you need a quick sale due to being in foreclosure, you can request short sale and foreclosure help and assistance on my website at Get Short Sale and Foreclosure Help and Assistance from a Nashville Tennessee and Middle Tennessee Short Sale and Foreclosure REALTOR, Real Estate Expert and Real Estate Investor.