Wednesday, October 22, 2008

Housing Prices In Recession

Well, not that you didn't know this already, but if we aren't in a housing recession right now, then my name isn't Paul Chapman. I've had two of my listings either sell or go pending in the past month and in both cases, the home sold or will sell, for far less than the owner paid for it!!

House number 1, was purchased in May, 2006 for $385,000. It closed in late September for $315,000 after 10 months on the market. If my math is correct, that's a loss of about 18% in the homes value in a little over 2 years. House number 2, as I write this, is pending and will close within the next couple of weeks after 6 months on the market. It was purchased for $161,000 in April, 2000 and will close for $118,500! That's a loss of about 26% in value over a period of over 8 years.

The National Association of Realtors (NAR) has a campaign out this year which says that over time, a home will double in value every 10 years. Now this may be true, but it's hard telling that to folks who right now, are "upside down" on their mortgages. This is something none of us in the real estate business have ever been through, so it's hard to judge what's going in. This is new territory for all of us. But over time, a home, if you hang on to it, will be a good investment.

Home buying is like the stock market. You have to be in it for the long haul. Buy a home now and turn around and sell it within a couple of years and you could find yourself "upside down." But take the case of house number 2. They had the home for over 8 years and look at the loss they took. Luckily, they are not "upside down" on their mortgage. It's just that they purchased another home and were getting tired of making two mortgage payments, so they are selling the house I have listed at a sacrifice price!

Again, people keep asking me "when will the housing market snap out of it." All along I've been telling them, by the summer of 2010, even though many, who know far more about the economy than I, were saying we'd snap out of it during the second quarter of 2009. With the current financial crisis, even those who know far more than I about economics, have adjusted their thinking to right about where mine was all along, the second quarter of 2010.