In Palmdale: Waiting for prices to fall

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Good morning. Peter Hong’s update on the Palmdale real estate market in today’s LATimes is worth a read. Prices are falling out there -- he profiles a family that bought a four-bedroom home in 2005 for $385,000 (yes, 100% financing), and now a very similar home nearby is listed for $325,000.

The problem, though, is that prices are still too high to attract buyers. ‘For the market to recover, ‘the median price has to come down to match incomes,’’ Lancaster real estate James Baker told Hong. (There’s a thought you rarely hear from a California real estate professional: prices must reflect income levels.)

Falling prices will mean more recent buyers and borrowers without equity, which will mean more foreclosures.

Despite what you hear from Washington, rising payments are not the only cause of foreclosure -- in this cycle, many foreclosure-bound borrowers go straight into default while still paying the lower, initial interest rate. In the land of no money down, falling prices mean foreclosure risk. If you start with zero equity, and prices fall, it’s nearly impossible to sell or refinance.

More foreclosures means more houses for sale, which puts further downward pressure on prices.

Your thoughts? Comments? Insights?