The Housing Crisis is NOT Over

I thought some of you might like to read a response to the Wall Street Journal article I posted yesterday. Here it is. This author makes 2 really good points:

1. “Because they always do”, as a reason for a housing sales and price rebound, is a bad reason.

2. Many buyers, even ones with great credit and solid incomes, will not be able to afford the 10% or 20% down payments the banks are asking for now.

It’s a very tricky situation. The scenario seems like this: Oversupply and priced out buyers create more downward pressure on prices. This in turn puts more homeowners owning a home that is worth less than their mortgage aka “upside-down”. Thus, more foreclosures and short sales occur which puts even more pressure on prices to go down. Interest rates cannot go much lower and the Fed has signaled that another cut won’t be coming soon. The interest rates are becoming secondary at this point. It’s the tighter lending criteria from the banks and the down payments that are making it harder and harder to get a mortgage. Maybe the only solution is for the banks to raise interest rates higher and lower the down payment levels. This would compensate them for the additional risk they are taking on while allowing buyers back into this real estate market. Any ideas?

-Martin