So you are suggesting that no new houses will be built - since, according to you, property value will drop 40-70%, forcing all new building & construction to grind to a halt as the cost of building a new home (without the land) will be far greater than buying an existing house with land.
What do you think that will do to the supply side of the equation?
Have we ever experienced a time in the past where (at the lower-middle end of the market) the cost of building ALONE exceeds the cost of buying existing house and land?
Will builders work for free?
I dun gettit?
Obviously, this can't and will never happen. It's pure mathematics and is something that the Uber-bears don't factor in enough into the argument.
If the prices drop so low that the cost to build is more than the cost of an existing land and house, then no-one will be buying a new house unless they are totally stupid (don't under-estimate how stupid humans can be, however).
Supply of new homes will stop, forcing up a shortfall in supply to a demand which is still growing apparently.
People may stop buying for a while due to the much more strict lending criteria, so the rents will stay under pressure, and there will still be the small amount of people who can access credit and who need to buy, or want to buy.
The end result is a probable slowing down of activity, hence prices slowing, but not a massive 70% drop like has been predicted.
There will be some properties that will drop this much I must say, but these will be your more speculative projects.
Such things as OTP townhouses, commenced at the end of the boom. The developers will be stuck with some of them, they were over-priced to begin with, and they will have to clear them off their inventory to avoid going bankrupt, or to free up funds for the next whatever it is they plan to do with the money.
We are seeing this now with the new Marina in Safety beach; new ultra top-end townhouses on the canal with boat berth, selling for $1.3 mill.
They are really only worth about $750k in my view, but some bunnies paid the full whack. So by now there's a few on the market for the correct price, but factor in the slowing market for these types of properties and they are really worth around $600k or so in today's market. And, there are very few buyers for them. Many are still vacant; completed at the top of the boom.
A really desperate developer may offload one for around $550k. Voila! a drop in price of 68%.
The figures were never real from day one, but the media will pounce on this and illustrate where you can run to so as to avoid the sky about to fall on our shiny noggins.
Of course, if you buy the Mr and Mrs Average 3 x 2 with a double garage and dog in St. Boringsville, it will drop a poofteenth from $450k to maybe around $425k if someone is desperate to sell there, because it is affordable, nice, liveable and plenty of punters can afford to buy those places.
