Upper-End Home Prices to Halve?

Bob Chapman is pessimistic regarding the high-end home market:

Banks have let high-end owners in default live in homes free for up to three years for technical reasons and to hide inventory. These figures are available to everyone, but we hear just the opposite on financial channels. Like everyone else in business there is little validity in his or her statements. Once these homes are unleashed banks and government will find very few buyers. The banks paid a paltry fine of $26 billion or $0.02 on the dollar versus what they defrauded the American public out of. The foreclosure party is over. The former owners will be removed and the homes put up for sale. The high end of the market is finally about to be hit. They are about to complete their 50% to 60% drop.

Reductions of this magnitude are difficult to imagine, yet Mr. Chapman may be correct. If a Depression commences, his numbers look reasonable.

I suspect we will have massive inflation preceding an inevitable Depression. In that case, you will not see the drop he forecasts. Yet, in real terms he might still be correct. If home prices hold where they are now and the prices of most other products double, his prognostication is correct in real terms.

That doesn’t mean that I agree with his forecast. I don’t know, other than I suspect upper end home prices will decline sharply. The important point is to recognize that the country is becoming poorer.Wages are not keeping pace with inflation. Arguably that trend began in the late 1960s. Yet we have all lived better, despite this anomaly. It was possible only by foregoing prudent levels of saving and borrowing to spend more than we were earning.

Many people bought second and third homes, believing them to be “good investments” and sources of retirement income. Some of these purchases made sense when debt was easy and home prices were rising. Now, as people get squeezed, extra homes and over-sized homes are burdens rather than assets. The housing mess has a long way to go, as do the adjustments downward in our standard of living. Be aware that many other trends in society will also be affected.