Bao, prices are still out of whack with what people can afford. If you look at the average income for buyers in this country, you will see that they still can't legally qualify for a home purchase. You look at places like Huntington Beach or other O.C. locations and the average income is around 50k a year. The rule of thumb has always been that you could afford twice your yearly income and you could stretch to three times that if you could work it. If that is the case, most people should only qualify for homes costing around 100 to 150k but the market is averaging at least twice that.
I have read a few news stories where banks are starting to make the same kinds of bad loans that almost led to the last meltdown. I don't know what will happen but they can't sustain that.
Now if banks are giving loans to people for 300k and 400k who should only qualify for 100k to 150k, that can keep the prices up there but it sets us up for another fall. If sellers see that banks are still making loans for over priced houses and buyers are still stupid enough to sign the contract, I am sure the sellers will hold out as long as possible to get out of their upside down mortgage with as much credit intact as possible.
With these conditions, it will take a while for the prices to wind down to their natural value. In my opinion it's still a game of musical chairs. Everyone is trying not to be the one left with an upside down loan when the music stops.
