I don’t watch a lot of television, but when I do sit down in front of the 42″ plasma high-def TV, it’s frequently tuned to TLC, The Learning Channel, and one of the shows I’ll watch is called Flip That House. Flip That House is a reality show about people who buy run-down properties, restore and remodel them, and then sell the houses for a profit.
I watched a couple yesterday evening, and, as always, I was amazed. No, not amazed by the jobs that they did, though some were reasonably impressive, but by the prices: they show people buying these absolute dumps, 3 bedroom, 1Â½ bath houses in modest, middle-class looking neighborhoods — and starting out at over $300,000 for the house. They take six or eight weeks, budgeting $40,000 to $80,000, and sha-zamm! they turn around and sell it for $579,000 or something like that.
Due to the markets in which I’ve worked since 2000, I’ve seen the housing bubble expanding like mad; I’ve produced a lot of concrete for Toll Brothers and similar high-end home builders. [When I started out in concrete, I did a lot of work for Ryan Homes, which (at least in the 1980s) specialized in larger but still reasonably priced houses.] Toll Brothers, on the other hand, builds McMansions, and I could never see how there could be so many people around Allentown, Pennsylvania and Hockessin, Delaware, who could afford houses in the $350,000 to $750,000 range.
I lived in a remodelled farmhouse when I was in Hockessin, actually a locally famous place, the old llama farm. I didn’t own the house, but rented it for two years. I was renting only the house; the separate office building with upstairs efficiency apartment and the barn and the 3Â¼ acres of land were not part of my lease. As the end of the second year of my lease was approaching, the owners decided that they wanted to sell the property, and since we were already there, they offered me what they considered to be a bargain; they were going to list the entire property for $385,000, but offered it to us for $335,000.
Well, I did a little checking on just what that would cost us, and, in very rough figures, we’d have been paying about $2,500 a month for the mortgage.
Uhhh, sorry, but no thanks; that would be $30,000 a year just in our mortgage payment! It was a nice house, and nice property (though it couldn’t have been subdivided, due to a pond and a stream running diagonally across the wedge shaped piece of land), but, realistically speaking, you’re looking at the entire take-home pay of someone with a $40,000 a year job, just to pay the mortgage.
Now, we weren’t doing badly in income when we lived in Hockessin, and we actually could have afforded it — if we were willing to eat potatoes and beans for one meal and beans and potatoes for the next. Maybe we could have splurged occasionally, and had rice, though soy sauce for it might be a real luxury. And the least little hitch, like one of us breaking a leg or getting sick for a couple of months, and it would have been all over; we’d never have recovered financially from getting just two months behind on the mortgage.
Thing is, the llama farm would have been a real bargain in that neck of the woods, for there were three Toll Brothers subdivisions surrounding it, and I well remember the sales sign at the entrance to Hockessin Valley Falls: New Homes from $350,000 to $750,000. If a $300,000 mortgage would have run me $2,500 a month, what kind of payments would people have to be making on a McMansion that cost three-quarters of a million dollars?
It’s no surprise that it couldn’t last; I’m still stunned that housing prices have gone up so much for so long since the market bottom in 1991. But the Standard & Poor’s/Case-Shiller home price index showed a record 6.7% decline in prices for existing homes, the largest decline since the 1991 construction recession.
In the year-over-year comparison, Miami posted the largest decline among the 20 markets with prices down 12.4 percent in October compared with the same month last year. Tampa, Fla., was the second-worst performing city with declines of 11.8 percent. Besides those two cities, Phoenix, Detroit, Las Vegas and San Diego also posted double-digit year-over-year declines.
Well, at least one guy thinks that it’s a good time to buy!
Home prices fall: Can it really be all bad?
by Tracy Coenen
Economists and financial analysts watch the housing market carefully for clues about how the American economy as a whole is faring. The latest headlines are about falling home prices, and the hysteria is building. Yes, it’s the 23rd month in a row that home prices either fell or didn’t increase enough to please analysts. That’s bad, right?
Well the housing market does give us some signals about our economy, and these numbers may be sign of weakness for Americans. (I don’t think it’s as serious as the media would have you think, but that’s another article on another day.)
I prefer to look for the silver lining in this cloud. What a great time for bargain hunters to get a great deal on a house! Sure, falling home prices are bad for sellers who might end up upside down on mortgages or who might not profit the way they had hoped. But it’s a great time for those who have been saving and planning for a home purchase to cash in. There are great deals to be had, and buyers have many choices in the marketplace. Happy house hunting!
Uhhh, maybe. If it were me, I think that I’d wait a while longer. There’s a serious backlog in existing homes for sale, the largest inventory since 1991, and home building has slowed way, way down. I know of a couple of subdivisions where homes are literally more than $100,000 less expensive than they were two years ago; it must suck to be one of the families who bought big in 2005! Yeah, there are some houses out there that look like real bargains compared to 2005 and even 2006, but there’s no particular indication that we’ve reached a bottom yet.
There’s only one number you need to check: the National Organozation of Realtors puts out a housing supply inventory figure every month. When that number declines for two months in a row (and it increased again in November), we’ll probably have reached the bottom and started to creep up again.
In the meantime, watch Flip That House, and see if you can tell me why a 3 bedroom, 1Â½ bath fixer-upper would go for over $300,000 in California.