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Michael White is the CEO of The New Mortgage Company. He has seventeen years in real estate as lender, owner, and mortgage originator. He has purchased and sold more than 275 properties for his own account, made hundreds of real estate loans for his portfolio, and originated hundreds of mortgages as a broker.

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Housing Prices Are Falling Again. We Have a Moral Obligation to Embrace The Trend.

Isolate recent values on the First American index of property values and a national fall is not difficult to anticipate.

Since I began in August to forecast a continuation of falling values, frequently I met with anger, disbelief, myopia. This week I wanted to take a closer look. So I pulled out one of the best number sets, and applied my crude math in exactly the same way I always do, but I did a close up on five years of data before and after the peak. The result is the chart you see below.

Rorschach has his own interpretation, but I see a fall of either nine percent (Z) or 19 percent (Y) if you go by crude trends (see Z & Y above). Either one is plausible. Values could also take off the other way and shoot up to the moon, but the chart is more a downer than an upper. Recently the trend is again down, although it would be almost impossible to learn this from media coverage. Values have fallen in five of the last six months by this index.

If values fall, it hurts the finances of current owners, but it makes housing cheaper. This is not an afterthought. Very few would deny that a competitive economy may need cheap houses to create affordable workers who can live well on lower wages. I tell you without question: We need cheap housing to improve our competitive advantage.


Everybody thinks rising home prices are good, but rising property prices may make many of us unnecessarily poorer by making it harder for future buyers and renters to pay the bills.

I wonder if the poor are hurt most by a policy which artificially supports housing prices? If true, then the Fed and the Treasury are taking dramatic action against the most vulnerable. The affordable housing people arguing in favor of foreclosure prevention are arguing against their own goals.

The crisis in Greece points to the problems which arise when there is too much debt. They are a country with negative equity. The back story on Greece is that national bankruptcy may be unavoidable. If they have too much national debt, they will not pay it back, even with a heroic bailout and radical cuts.

We have the same crisis here, but in housing and mortgage debt, and we have been lying about our own bankruptcy. Values bubbled irrationally in a pattern far worse than any of the last 120 years (see above). Massive unaffordable mortgage debt financed a flim-flam scheme.

A national fall in prices of 31% proves that the housing market was a lie. Yet mortgage balances are only two percent less than their peak. What makes sense: A fall in home prices of 31% or a fall in mortgage balances of 2%? (see above)? There is probably no greater lie in our economy today than the divergence in values of homes and mortgage balances. Our economy is not fixed until this is fixed, and yet nobody talks about fixing it because nobody sees it or considers it.


The key is uniting the value of real estate and the income of property owners and renters. What we need is a rational capitalist market. We need a market price driven by private actors. The Fed, the Treasury, and Fannie & Freddie have destroyed the free market in housing and by doing so they are orchestrating poverty and misery for any person who needs a place to sleep at night.

Real estate has an established price over time. That has been proven by Case Shiller. Their study of 120 years of data offers obvious evidence. They are on record saying housing is a stable asset with no change in value from 1890 to 1990. And all the other screamers who say pricing is different now simply argue based upon imagination and prejudice.

I say go with the hard data. I say Case Shiller is right. I say return to the trend lost in 1990. Values must fall. I estimate by an additional 22 percent.


We should all be cognizant of the positive value of falling prices. If unemployment is high, and demand for labor requires a reduction in pay, then make housing cheap and we kill three birds with one stone: We reduce the cost of labor, put labor to work, and maintain the material standing of the wage earner. Who argues against this? By their actions, all of the powers that be in Washington D.C.

As you think about this you may come to embrace a fall in prices as the right thing to do on so many levels. For 20 years the most difficult bill we pay every month has been made much more difficult. And in case you hadn’t noticed, we’re having a problem competing against cheap labor all over the world.

There’s no end in sight to the stupidity of government actions meant to stop prices from falling. Such is the folly and consequence of men and women with power playing games they do not understand. Go ahead and hang the bankers, but make sure to burn the economists at the stake. They are safe because they can calculate in their head if the heat of the fire is deadly.


PRINT — Housing Values Are Falling Again.

Please forward questions, corrections, and reactions to comments below or send me an email. Please send an email if you would like to take out a new mortgage.


Michael David White is a mortgage originator in Chicago.

There Are 7 Responses So Far. »

  1. I’ve been in the mortgage business for over 20 years. The industry and government have a vested interest in keeping prices high. Real estate sales commissions, origination fees and obviously real estate taxes are all percentages of property values. To this end, they keep rates artificially low; they’ve reduced or eliminated downpayment requirements, raised max debt ratios and reduced qualifying rates.
    Underwriting has not changed to keep up with the times. In todays business environment most workers contribute a significant amount to health care benefits and 401k retirement accounts but those numbers are not reflected in the 40 and 50% debt ratios that are not uncommon today, not to mention cell phone bills that rival car payments.
    It’s amazing to me that the backdrop for the run up in real estate values over the course of the last few years has been a period of extended income stagnation. Unless the industry or the government has another trick up its sleeve, prices must go down further for the housing market to be stable and sustainable.

  2. “prices” reflect NOTHING

    except the complete ineptitude of the Real Estate Brokerage community


    stop reading statistics and graphs and interview an appraiser

    youre just like a Ratings agency who doesnt exercise due diligence.

    do your homework.

    Price and Value are DIFFERENT

  3. Hypocrisy is the Vaseline of political intercourse.

  4. “prices” reflect NOTHING

    except the complete ineptitude of the Real Estate Brokerage community

    long term………VALUES ARE GOING HIGHER”

    Oh oh, sounds like someone is holding on to their underwater mortgages, and blaming the messenger, again.

    Soooo, now appraisers don’t appraise by recent sales…they appraise by some pie-in-the-sky “value” only they are wise enough to see…thanks for today’s chuckle.

    “long term” we all are terminal…but I ain’t crawlin’ in the ground yet. “Value” that.

    Until PRICES reflect what RENTALS will bring investors, and reflect the community’s median wages and employment levels, your argument is not just specious, but hilarious. Again, thanks for the laugh.

  5. Appriaser

    Had the federal and state governments not intervened with moratoriums and modification programs over the last year and a half just where do you think prices would be right now?

    As to your argument about value. The price of a college degree is higher than its ever been at the same time its value is probably the lowest it’s ever been.

    Mike’s article presents a view and supports that view with statistical information. You scoff at that but don’t provide any information at all to support your position.

  6. Excellent article. Prices have to adjust with incomes to provide inflation relief. Inflation relief and lower prices would help kick start the economy.

    Now that the spring spike is over with the expiration of tax credits, and shadow foreclosure inventory will likely be released, prices should adjust. Add increased FHA mortgage insurance to the equation, and borrowers will simply qualify for less loan. If debt to income ratios are limited, as proposed in a Senate amendment that was approved, it could add further depress prices.

    As borrowers find that the HAMP program is not the magic wand it is deemed to be and grow weary of of trial payments, there should be a spike in strategic defaults later this year. That is, unless the Obama admin can dangle out a new teaser. The default rates are still high, and HAMP mods and other loss mitigation programs are slowing the tide of foreclosures. But defaults can only be stemmed for so long.

    The decrease in prices is needed, and if this were fuel prices and not home prices that are being held so high by government intervention, people would be rioting in the streets.

  7. “Appraiser” excepted, this article and its commentaries are spot-on.

    I live in California. Over the past seven years, I have seen housing prices triple, come down by a third and people are screaming like scalded cats. They are screaming in spite of the fact that median housing prices are still 100% above intrinsic levels and 70% above prices which can be supported by California’s median household income. Need I add that median income in California is expected to continue falling for at least the next two years?

    Prediction? Historically established metrics indicate that a crack in the California housing market will appear sometime this Summer (July-August). The news media will then bring out their cheerleaders, shaking their pom-poms, to tell us that the “economy’s recovering”. And finally, somewhere near to late Summer or early Fall next year (2011), the bottom will fall out. As Krista Railey so clearly notes, “…defaults can only be stemmed for so long.”

    And then, will there be good buys to be had? Not likely. Current projections of bank and government balance sheets tell us that the Federal government no longer has the cash to bail out the banks again. No cash, no loans, no housing bought.

    It’s interesting to speculate on what we have done wrong in the past but I believe that it is much more important that we figure out what to do right in the future. My questions: What can we do to get the spoilers out of the markets and what are we going to do when they’re gone?

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