Silicon Valley Prices Stop Sliding?

I was off for an extra long weekend with the family to see the fall colors. They are beautiful around here -- and gone too soon. For at least 5 full days, I stayed away from newspapers and didn't think about real estate, finances or anything related to mortgages.

To my surprise, I check the news this morning on some of my favorite sites, and see that the price drop in Silicon Valley is already being declared over! Honestly, I wonder how analysts can make such predictions on such little data. Apparently, September was a good month, and housing prices only lost $1000 on average from the month of August. This still puts the median price of a house in the Valley at $769,000 -- which is crazy. In any case, one good month with a small drop in price does not a trend make.

I'm not convinced that the cooling market won't take a much larger bite out of the value of homes in many previously "hot" areas in the US. Frankly, I think it has to. Affordability of homes is at an all time low in many areas. If families can't afford to buy, how can prices stay high? And while mortgage rates are staying relatively level at the moment and show no immediate signs of going up, rates are still much higher than they've been for the past few years. Those low rates made high prices okay with buyers; that isn't going to be the case now. In fact, we still have the potential for higher than normal foreclosures as mortgages come due and have to be re-negotiated at these new higher rates.

Despite the headlines, I'd be expecting more slow downs before things level out.

Michael

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