Another Great Depression for Housing?

great depressionFred Stevens, a policeman in Ohio, saw his house value drop from a peak of $103,000 when he refinanced in 2006 to a current low of less than $40,000. "I could have walked away, but wanted to do the right thing." November 2010 housing prices declined more in the current market than during the Great Depression, according to Zillow.

Whether prices have surpassed the price drop or not, individuals are certainly feeling the pain.

Stevens has been trying for the last two years to work out a short sale agreement with the help of American Homeowner Preservation (AHP), but the bank won't agree to the terms. Stevens faced financial difficulties following a divorce, loss of parent and other medical issues.


The bank did agree to a short sale of $43,000 less $8,950 for repairs plus other closing costs and back taxes or a net price of just $28,883, but it refuses to agree to a key part of AHP's program, according to Jorge Newbery, Director of AHP. AHP finds an investor to buy the home and signs a lease with option to buy with the homeowner.

In Stevens's case the bank will not sign a waiver to allow the Ohio policeman to stay in his home. Newbery says the bank will actually net less money than the $28,883 because it will now face additional charges to evict Stevens plus once Stevens is out the bank will have to pay to secure the property and still likely face theft and vandalism.

The home went to a sheriff's auction on Friday, January 7 and there were no takers. So the bank got the home. A confirmation hearing is scheduled within two weeks and Stevens could be evicted within five weeks. AHP is still Find Local Homes for Sale Browse through photos of millions of home listings on AOL Real Estate See Homes for Sale Search Foreclosures for Sale working with Stevens and hoping to save his home with legal help. There are some legal questions regarding chain of title that could enable AHP to negotiate a settlement and help Stevens keep his home of 14 years where he lives with his two daughters and granddaughter.

Do other experts agree that the housing crisis has reached Great Depression proportions? For economist Robert Shiller, it's old news. He said that would happen back in 2008, but others think the housing markets are too different to make an apples to apples comparison.

While Shiller thinks we're experiencing a downturn as bad as the Great Depression, Brian Coester, CEO of the Coester Appraisal Group, says it's not an easy comparison. "The government didn't start keeping track of home values until the 1950s, so it's hard to say whether or not depreciation is similar." His estimate is that home prices were in the average range of $8,000 to $11,000 (he can't be sure).

Coester also points out that home financing was much different in the 1920s and 1930s. People had mortgages for just four or five years. Only adjustable interest rates were available and most mortgages were interest only with a balloon payment. The 30-year fixed-rate mortgage was not available during the Great Depression. That was created by the Federal Housing Administration after the Depression.

One solution that was available to fill all the vacant homes after the Great Depression may not be used today. The vacant homes were given to troops returning from World War II in order to help stabilize the housing market. Instead banks are refusing to work with creative programs like AHP's to try to keep homes occupied even by civil servants who serve the public like Fred Stevens.

Jonathan Miller, an analyst for the MRIS/RBI thinks the numbers for the real estate market this year show "artificial highs" and "artificial lows," primarily because of the ups and downs of the market in 2009 and 2010 caused by the tax credits. People were pushed to purchase homes to meet the tax credit deadlines earlier than they might have done so. So prices started to jump up as the demand increased and then drop again as the demand slacked off. He thinks we'll see a more normal pattern in 2011 without the artificial stimulus of tax credits.

He insists "there is no national housing market" and thinks any attempt to correlate today's market with that of the Great Depression can't be done. Real estate is local. Some markets, like the metro DC market, are going up, while others are still falling.

Lita Epstein has written more than 25 books including The 250 Questions Everyone Should Ask About Buying Foreclosures and The Complete Idiot's Guide to Personal Bankruptcy.

For more on mortgages and related topics see these AOL Real Estate guides:

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Ed

Look people lets not forget all the greed that got us here! from wall street, the banks, the gov, and the homeowener. It took all of this to make this mess, BUTT dont forget the banks got bailed out with your tax $ so were is the home owners bail out? owe it is not a too way street any more. If you owe $140k on your house butt the house worth is only $60K and you make all your payments on time the banks will not work with you so you have to destory your credit to MAYBE get some help after once again WE bailed the banks out. just does not seem fair. Why spend savings or money you can be saving to pay the banks? not smart it is a bad investment the banks would not do it. bacause if they would you would not have to destory your credit. So keep you money for a better days.

January 17 2011 at 2:14 PM Report abuse rate up rate down Reply
dingbat2848

The problem kiddies is that people used their houses like piggy banks. Refinancing is fine but NOT when you take out all the equity. Stupid, stupid, stupid!!

January 16 2011 at 10:04 PM Report abuse rate up rate down Reply
CarlG

My country right or wrong MY country, trouble is it has be very wrong lately.

January 16 2011 at 12:34 PM Report abuse rate up rate down Reply
ed

MANY PEOPLE DON'T UNDERSTAND THAT IF YOU BORROWED $350,000 TO BUY A HOME AND STILL OWE $300,000 BUT THE HOUSE IS WORTH $225,000 NOW AND YOU CAN'T AFFORD IT, THE BANK WILL FORECLOSE AND TRY SELLING IT ON A SHORT SALE. IF THE BANK GETS $150,000 FOR IT YOU WILL GET A 1099 TAX FORM FOR $150,000 THAT YOU WILL HAVE TO CLAIM AS INCOME AT THE END OF THE YEAR. THE BANK WILL CLAIM THEIR LOSS AND YOU WILL HAVE TO CLAIM THAT YOU RECEIVED THAT MONEY. I HAVE CONFIRMED THIS WITH A CPA AND AN ATTORNEY.

January 16 2011 at 4:42 AM Report abuse rate up rate down Reply
1 reply to ed's comment
CarlG

Suggest you check with another attorney and CPA as I am thought there was a new IRS ruling or maybe even a law that changed all that. My CPA says no to the income.

January 16 2011 at 12:18 PM Report abuse rate up rate down Reply
VegasDude

Oh BOO HOO.. POOR COPPY POO

January 16 2011 at 4:39 AM Report abuse rate up rate down Reply
Regina

shame on you all, did you read the article? it states that, Stevens faced financial difficulties following a divorce, loss of parent and other medical issues. never assume anything you do not have any idea why he is in the situation he or anyone else is in..

January 15 2011 at 10:55 PM Report abuse rate up rate down Reply
1 reply to Regina's comment
Obie Jay

People don't read. It's waaay too easy to "pile on the dog-pile" then to actually READ the article and form an opinion based upon the FACTS presented.

Come to think about it, alot of people don't think either. Republicans pushed for deregulation because they (corporations) actually had accountability beforehand. It's much easier to fudge numbers when no one is looking over your shoulder...

January 15 2011 at 11:05 PM Report abuse rate up rate down Reply
carol johnson

The banks need to address several issues - at present they have lousy customer service - the first one to step up to the plate with good customer service will receive a landslide of business (doesn't take a rocket scientist to figure that one out) - another point - they are totally being number crunchers - just like the banker in the Jimmy Stewart movie - only ten-fold - they need to look at people and start caring about people....... again the first one to step up to the plate on that one will receive a landslide of business......

January 15 2011 at 9:47 PM Report abuse rate up rate down Reply
WILLIAM SOWLES

Don't fool yourself, this is the biggest land grab since the Indians were sent to Florida on the Trail of Tears. If they can't get your property by purchasing it, they will deflate it's value to 0 if need be, so they can steal it. What in the name of heck are the banks going to do with over 5,000,000 homes that are being vandalized, vacated, and deteriorating in the winter months? Ghost towns are what you are going to see. Especially across the upper mid-west. For example, $120,000 homes in Youngstown, Ohio are on the market by the hundreds for $3,000.00 to $6,000.00. I just saw a very nice home in Arkansas that was on the market last summer for $43,000.00 The bank took it back and now it's on for $16,000.00 Still no sale; the bank will be lucky to get $5-10,000.00 for it. Now it's priced at $10.00 per SF. That's about what it cost to build a house in 1960. So here we go, another great depression brought about by excess government spending and those who thought money grows on trees. I notice how the Libs are begginning to loose their minds over this. In their idea of Nervanna, this was not supposed to happen. It only happens in Cyber-space? Well, welcome to the real world socialists.

January 15 2011 at 8:57 PM Report abuse rate up rate down Reply
1 reply to WILLIAM SOWLES's comment
CarlG

Trail of Tears? I thought that was sending the Cherokee from the SE(Georgia and Florida) to Oklahoma area. Then they tried to steal that when they found oil.

January 16 2011 at 12:21 PM Report abuse rate up rate down Reply
tc

I dont understand why people are complaining. You voted for change and you got it.And you know what the funny thing is, in 2012 you will vote for the great one again. What a joke.

January 15 2011 at 8:15 PM Report abuse rate up rate down Reply
1 reply to tc's comment
Steve

When the minorities band together, they can put "their man" in office. Heaven forbid they should vote their conscience, rather they voted based on race alone. Now, can somebody explain to me what those idiots in those Midwest and New England states were thinking about? McCain may be a little old but he has more integrity and intelligence than Obama ever thought about having.Our country missed a great opportunity. Just as bad as when we didn't vote in Ross Perot. That's the type of leader we need, balance the budget, PERIOD.

January 16 2011 at 1:45 AM Report abuse rate up rate down Reply
Laurel Richardson

The crisis is that people are using more space than is needed. Why can't a family of 4 survive in a 1200 square foot home? A family of three does not need 3000 plus a basement. America---get real!

January 15 2011 at 6:10 PM Report abuse rate up rate down Reply