Housing prices Q3 2008
Housing prices have been on the roller coaster down hill for a while now. Back in early 2007 I put a page together showing that housing was still affordable in many areas of the country.
I want to reiterate that YOUR HOUSE IS NOT an INVESTMENT. Aside from reverse mortgages that can be a good deal for some your house is not a cash machine to borrow against as prices climb. This is partly the reason that many average consumers have got into so much trouble.
Your goal with a house is simple. You want to have your home paid for by the time you retire. Why? because not having to pay a mortgage is going to save you 20% to 35% on your budget. (remember, you still have taxes and insurance to pay).
How far have housing prices dropped since 2007
The best advice I can give you here is research the area you live in. National averages do not tell the story for your area.
For instance, in Jan 2007 when doing research on areas where housing was still affordable compared to the national median price that was being touted I found in San Antonio that one could still get into a 3BR/2BA rambler for about $100k. There was a modest inventory available at this price range.
Today in similar San Antonio neighborhoods you can get into a 3BR/2BA home of equal value for around $55,000 to $60,000. Given our current economic climate prices may still drop further. But remember, your home IS NOT and investment!
Since I provided you will real data back in 2007 for a few areas, last evening (10/10/2008) I went back out to Realtor.com and did research in those same areas, looking for houses in similar categories. Here is chart of what I found.
|City/Area||Jan-2007 Price<||Oct-2008 Price<||% of 2007 Price|
Of course there is a lot more inventory out there. Seems old stodgy supply and demand economics still works. Since a picture is worth 1000 words I have captured the picture of the properties from both periods for you to see. Homes have same number of Bedrooms and Baths and have similar square footage.
|City/Area||Home from Jan,2007 (Top) Home from Oct,2008 (Bottom)||Notes|
|Palo Alto||In Jan, 2007 this was the only listing less than 1 million dollars. Oct, 2008 there were 21 properties less than $300k.|
|San Antonio||70 houses listed less than this price point in Oct, 2008.|
|Fort Wayne||55 houses listed less than this price point in Oct, 2008. There were a number of fixers under $11,000.|
Opportunity Knocks for some of you
If you were one of the conservative ones that has a steady income and did not get sucked into the housing and credit bubble of the last decade this period is your time and your reward provided you have enough saved for a down payment. In fact, the new economy that emerges out of the ashes of this fiasco will be predicated (at least until the next set of numbskulls screw it up) on liquidity, equity, and responsible management of ones money.
Fact is, the housing insanity. like the dot.com insanity was just too good to be true. Those of you that stayed on the sidelines will be rewarded as you will be the ones that have managed your money wisely and will be able to reap the benefits of high housing inventories and lower prices.
Buy what you can afford. There are many factors involved in setting a price. I would not spend more than 25% of your monthly NET income for a house payment (this includes principle, interest, taxes, and insurance...commonly referred to as PITI). If you really want to be conservative and have two wage earners in the household make that number no more than 30-35% of one of your incomes (assuming they are close to equal or close). And, make sure you can live off of a budget that can be met on a single income.
I want to thank all of you that did not get sucked into the housing frenzy that has occurred for the last 8 years! You are going to be the ones that will be rewarded for doing the right thing. Actually, it is people like you that are going to be part of leading our economy to the slow recovery that will ensue.
Take your time in getting into a property. The recovery is going to take years. Houses will likely decline even further. The deal of a lifetime presents itself every day. Take your time, do your homework and continue to be frugal with your money.
But I Bought during the bubble and am in an Overpriced Home
Can you afford the home you are in? If so you need to stay in the home and continue to do the right thing and make the payments! Why?
First and foremost it is the honorable thing to do.
We have become a nation that thinks it is okay to walk away from our fiduciary responsibility. In the late eighties my parents moved from Chicago to Dallas. They bought a place for about $75,000. An economic downturn occurred and similar properties were selling in their neighborhood for about $35,000. Half price! They stuck it out and did the right thing. When they were both retired around 2002 they sold their place for $85,000. Lesson: Be patient...and...your house is where you live, it is not an investment.
Second, you do not want to damage your credit!!!
It has been awhile since bankruptcy laws have changed and it is harder to declare bankruptcy and protect your assets. With the current economic collapse that is on the magnitude of what happened during the great depression credit is going to be much harder to come by (as this is how it should be).Walk away from your home now and you will be hard pressed for a lender to lend you money for another home.
Third, your home is not an investment.
It is a) where you live; b) your security blanket for when you retire. In other words, your #1 goal is to have your home paid for by the time you retire.
Fourth, it may take time but the price will eventually come back to what you paid
We bought our current home in the Seattle suburb of Renton in 1991 for $112,000. The value of our property did not appreciate for close to 10 years. I was never once concerned about this because I have always view my home by the principles stated directly above.