They aren't working. They will continue to not work. And the answer can be found in that area that has taken the biggest hit on the part of the credit crisis -- the 20% down payment.
Back in the day when my Mom bought the place in Brentwood (Long Island, not California), a 20% down payment was about 7K. Steep, sure, but not impossible. That was the whole point of the down payment concept.
Fast forward to the days at the height of the real estate boom, where the TYPICAL house price in the bay area was well past 500,000 dollars. Suddenly a down payment was 100,000 dollars.
Quick quiz -- how many people even KNOW anyone with that much cash in the bank, much less have that much savings themselves?
Back in 1998 my income was finally getting to a more comfortable level, and Michele was pulling in some good money as well. We were interested in a house around the 200K range, which would have required an already hefty 40K in down payment. I took out an unsecured loan for that amount in order to snag the house in Boulder Creek. Sure I still needed to pay mortgage insurance, but after a year I refinanced to eliminate that need.
In '98 it was still a fairly edgy idea, borrowing the down payment. I was only slightly ahead of the curve -- by 2004 it was accepted practice in California to borrow the down payment, an almost impossible to save 100K (or more!). Folks, if you could save that much money, you might start to wonder why you would buy a house for that much money -- after all, you could move to, say, Phoenix, buy a house OUTRIGHT, and still have money to live on for awhile.
Yes, I'm being facetious -- I want to live and work in California. As do the 30 odd (some would say VERY odd) million people who live and work here now.
But to purchase a home here now? Even these of us with the best of credit (a group that includes, much to my own surprise, myself) still have to come up with that 20%.
The house we're renting now just dropped another 10K in the last week (31K in 30 days!), to 590,000.00. That's already down 170K from the peak 4 years ago.
If, in a fit of insanity (or perhaps the understandable desire to avoid Yet Another Move), I decided I wanted to purchase this place, I would need 118,000 dollars JUST for the down payment. Add all of the other taxes and fees, and it's likely I would have to stash 150K.
The current median price for the entire US of A (according to Zillow, which tends to "Zestimate™" high), 200K. Still over 50K to start out, but that's almost reasonable. Based on any measures of REAL value I can find (especially the 100x rent rule) the place we're in now is worth, at most, 250K.
Why yes, I AM suggesting that MEDIAN house prices in California will need to drop back to the 200's (and lower) to induce a sustainable recovery (currently it's about 363,000). And it'll happen, because there's no mechanism in any of the housing recovery schemes to break that "20%" barrier. That's why you'll see so much push on the side of Real Estate groups to reinstate programs that assisted "first time homeowners" with that down payment. Bush, in his infinite stupidity, tarred ALL 20% assistance programs with the same brush as the high-risk piggyback loans, and they were ended last October.
The winter months are typically the slow months, so it's no surprise that the real free fall in housing prices started in February -- normally people are anticipating the spring months with glee. Now, there's a real chance that all the forestalled foreclosures will start flooding the market, and the "ghost inventory" of already foreclosed homes that are stuck on the bank's books will finally hit the sale listings.
You ain't seen nothing yet. That wasn't a bottom we just hit... that was a ledge bounce. You know, you fell off a cliff, and hit an outcropping, you'll rise up a foot or two before you continue your rapid decline. Think of it as a "dead cat bounce" -- with style.
That 20% barrier will be instrumental to making the bottom obvious. Prices WILL flatten out, and be kept low because of it.
Now the fun part: Waiting to see if I'm right.