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Friday, November 27 2009 |
09:43 EDT |
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- Home buyers who bought the "median priced single-family" home at the 1979 peak are now under water.
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This news story has 14 comments:
And we wonder why people are foreclosing in record numbers...
Anyone who bought a house between 2003 and 2006 may as well just foreclose now -- regardless of the affordability of their situation.
Even if prices stabilize this year (which is unlikely), at the "normal" rate of 3-5%, it will take most people 10-20 years to get out of the red. They can rebuild their credit and recoup their down payment a hell of a lot sooner than they will break even on the property.
Sure, some folks have sentimental value, etc, invested in their homes, and other folks don't want the credit hit, but if you look at it by the numbers, no one who's underwater today has any incentive to keep making payments.
To quote an idiot: "President Obama, are you listening?"
There are still so many people who think that, in the long term, they'll turn a profit on the homes they bought between 2003 and 2007.
The only good news is that if you amortize the losses over 30 years, the losses aren't really that much per year. Unfortunately most people paid as much as they did because they assumed they would profit in the long run. Wrong.
It's inflation adjusted. A home purchased in 1979 at 2.5% inflation over the past 20 years would be worth 110% higher in nominal value today. Although your real home value has not increased since then, because you are paying a mortgage on the price of the home 20 years ago, your mortgage rate most likely has not increased substantially since then either. The only thing you've lost here is opportunity cost because the nominal value of your home is still 110% higher.
Saying that people who purchased a home in 1979 is underwater is severely misleading because of this.
Am I missing something?
> This does not differentiate by markets which you have to do in real
> estate, especially due to the new growth markets that did not exist
> then.
Right -- some markets have lost 60% or more of their value, not the rosy ~30% of nationwide averages.
On Mar 29 08:09 PM mike mohr wrote:
> For example, I bought an average house for $65K in 1983, the house
> is worth over $350K. I can sell my house in a week for $350K if I
> want to and pocket $300K.
> Am I missing something?
Yes -- among other things, houses were a lot cheaper in '83 than in '79.
Someone who bought in '79, for say $150K, might have their house paid off (though I'd bet hardly anyone lives in the same home for 30+ years anymore), so they have a nice asset that can shelter them payment-free...but that's about it. Ouch.
They paid all that principal and interest for something that's now cheaper than when they bought it, say $130K. And over a 30 year spread, that's just nuts, especially when you consider ~3% inflation: $150k in '79 was 'worth' almost twice as much as $150k today. Double ouch.
There is some truth in the chart presented here but by using median prices it overstates the decline in the last two years. The major problems with real estate have been in the lower priced segments of the market. This is where foreclosures are occuring and most of the sales are concentrated. With few sales at the medium and upper ends the median price right now is historically distorted downward.
The charted nominal values can be seen at our website. It also illustrates that Existing Home & New Home Prices both breached historic support levels (2.25 x's Family Income) in January. The Realty recovery will be evident in Q2.
I have been a home owner for the past 25 years. I have owned 3 homes. I made some money on the two I sold because of timing that was just dumb luck. However, I have had to make substantial improvements to this current home, a fixer, to make it livable but its value may have declined and I won't see a positive return for years but I have holding power and about 63% equity. In the last real estate downturn in the late 1980s I experienced a similar decline in value. But I now live in a low price volatility region with stable ownership and relatively low turnover. If you asked me 5 years ago if a home was an investment I would have said yes. Today I would still say yes but with the caveat that your holding time might be longer to realize an inflation adjusted gain.