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Housing Market – It Was Only A Matter of Time

August 10, 2010 · 27 comments

in Personal Finance

I was thinking this morning about the horrible state of the housing market.  The area I live in has been especially hard hit, along with the job market.

While pondering all the foreclosures and the drop in home prices, I thought back to the mid 90s.  I was in my 20s and we were living in our starter home, which was a cute ranch that was about 1000 square feet.  My husband and I both had decent jobs, but we did have some debt from college and our wedding.  So, we bought a home we could afford comfortably, and figured we would buy something bigger as our careers progressed, if necessary.

While on that quest for our first house, I remember driving around and looking at a lot of neighborhoods, and visiting the occasional ‘Home-A-Rama’.  I looked at homes of all types, just to get an idea of what was out there.  It was during that time that I noticed that all the new homes being built were huge, and well out of our price range.  Keep in mind, there were a lot of houses going up at that time, as the suburbs were rapidly expanding.  I would drive through these neighborhoods and see families around our age and I wondered ‘what are they doing that we are not?  How in the world can they afford these homes?’.

Flash forward 15 years and now I see that a lot of people are NOT affording those homes.  I don’t think it is only because of the unemployment, but also because there is just a glut of giant houses.  Sure, there are smaller homes available, but they are mostly much older homes, or condos.  I don’t know, maybe if the economy had stayed strong even more giant houses would have been built.  However, I just don’t know how many ‘wealthy’ people one metro area can generate that have the ability to buy and maintain these homes over the long term.

For many people, the housing market has presented an opportunity to either upsize, or get a great deal on their first home.  However, with a large home comes a lot of large bills.  I don’t even use all the rooms in the house I currently live in, so I cannot see the need for an even larger house, regardless of the perceived ‘deal’.  Not to mention I would probably time the market wrong and end up underwater somehow anyway.

How are home values in your area?  Are they picking up at all?

p.s. if you want to get an idea of your home’s estimated worth, visit Zillow.  All you have to do is provide the address and it will provide the value of that home, along with other homes in the immediate area.  It is kind of an interesting tool, but keep in mind, it may not provide an estimate you want to see!

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{ 25 comments… read them below or add one }

Nicole August 10, 2010 at 8:18 am

According to the local tax assessment office, our house has been going up in value at a steady clip of 2%/year. Last year when it was assessed for refinance, they were overestimating it but we’d still gained value. This year they wouldn’t take our word for anything without a professional assessment. 😐

We’re not a big enough town for Zillow to work.

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Kris August 10, 2010 at 10:13 am

Nicole, mine has steadily been going down, but at least my taxes are starting to reflect that. (Silver lining…)

You must live in a better part of the country than I do – good for you!

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Nicole August 10, 2010 at 2:41 pm

I don’t know that it’s a better part of the country so much as a single market. The college hasn’t cut back tremendously yet (word is more cutbacks are coming…) and the college is the job market and the housing market. If they put on a hiring freeze or raise tuition more than normal, then we might have a problem.

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Young Mogul August 10, 2010 at 9:26 am

Home prices and sales in my area are pretty stable. However, I’m in the South and I read in a Yahoo Finance article on places least affected by the housing bust, that my city didn’t experience any of the high home appreciation, so it also avoided the lows. Houses in my neighborhood are definitely selling a little bit slower than in the past, but still selling, nonetheless.

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Kris August 10, 2010 at 10:15 am

Young Mogul – That’s great that sales are good in your area too. Most people around here know that moving is not much of an option unless you want to take a bath on your house (if you sell at all).

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Budgeting in the Fun Stuff August 10, 2010 at 11:28 am

Our home has gone from being worth about $140,000 to about $130,000, but I don’t plan on moving anytime soon, so I just enjoy the property tax benefits. 🙂

BTW, I also put a high value on buying an easily affordable home and agree that at least half of the bankruptcies in our area were due to over spending, not the economy.

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Kris August 10, 2010 at 2:21 pm

BFS – Your house is doing pretty good then, that is fantastic. I do like my lower tax bill for sure. We just need things to rebound before we move!

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WaterBishop August 10, 2010 at 12:38 pm

All the huge homes are for sale here as well. However, they are still listed for about $3-10 million. Even the “cheaper” houses for $600-900,000 are generally more house than we need anyway. I am hoping the market does not pick up since we are hoping to buy next year and it would be great to get a nice price. I’ll never understand why real estate is so expensive in this city. I need to move to the ghetto or a far flung suburb to get more than a shack for less than half a mil.
There cannot be that many wealthy people around here, so I think most people selling now, bought far more house than they could realistically afford. The more modest neighborhoods have far fewer for sale signs.
I think prices will continue to go down for at least another year.

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Kris August 10, 2010 at 2:22 pm

Water Bishop – I think our area is expected to bottom out during 2011, I believe nothing until I see it.

Very true, it is a perfect time to buy. Even if you miss the true bottom, you will still be in a much better position than most!

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The Biz of Life August 10, 2010 at 1:14 pm

I live in the DC area so we have Uncle Sam and all the government workers supporting the real estate market here. We haven’t seen much of a drop in prices. But the good news is the valuation of my house for tax purposes went from outrageous (a number I couldn’t begin to sell it for) to a number that more accurately reflects its value.

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Kris August 10, 2010 at 2:23 pm

Biz – I do love the drop in taxes. The unfortunate part of all of that is our city is losing revenue, so they are talking about closing the libary, reducing the police force, etc. However, we have a crabby mayor so hopefully those threats are just smoke, but I do understand that the lower tax base is hard for the cities right now.

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Suba @ Wealth Informatics August 10, 2010 at 4:47 pm

>>I wondered ‘what are they doing that we are not? How in the world can they afford these homes?’.

This is exactly what we are wondering too! Our friends recently bought a huge 4 bedroom house. We figured they must be earning a lot more than we do. Every one keeps saying this is the perfect time, but nothing is still affordable for us in sunny Southern California 🙁 Last couple of weeks, we have been doing/redoing our budget to see if there is some gaping hole somewhere, working on all different calculations to “somehow” find money… nothing is working! [silently goes back under the rock and wonders “what is that we are doing wrong? How in the world can they afford these homes?”]

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Kris August 10, 2010 at 4:49 pm

Suba – Maybe it is inheritance? Maybe they are willing to take on more debt? I don’t know. I just remember seeing young parents playing basketball with little kids in these driveways and thinking ‘Wow, we are older than them and could never afford this house’. I am content though, but still curious how they do it!

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Rebecca August 11, 2010 at 5:07 am

They’re in debt up to their eyeballs!

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Budgeting in the Fun Stuff August 11, 2010 at 2:14 pm

YES! It’s like that commercial with the smiling man mowing his lawn and asking for help since he’s in debt up to his eyeballs…he’s an inch away from suicide but nobody knows since he smiles and mows his lawn…it’s a creepy commercial but oh-so-true.

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Rebecca August 10, 2010 at 5:15 pm

I have to say that it didn’t take a financial genius to see the housing crash coming. I bought my house in 1995 for $63K and 3 years later it was appraised at $180K. It seemed ridiculous to me! Now houses in my neighborhood are going for around $120K. During the worst of it, my neighborhood was one of the hardest hit in the country. Seriously, there were 3-4 foreclosures on every block! But it’s actually been good for the neighborhood because it sort of cleared out some of the “rif-raf” if you know what I mean.

But… back to the topic of the crash being no surprise. All through the 90’s I worked for a non-profit music school surrounded by starving musicians. I had to verify employment etc whenever one of them bought a house, so I ended up chatting real estate quite frequently. HOLY MOLY! I mean, these were people living on the hairy financial edge, and they were buying houses for well over $250K with these ridiculous ARMs and interest only mortgages! People kept telling me I should buy a bigger house etc, but it just seemed like total craziness to me. People kept saying these nonsensical things like “the housing market will always go up.”

Needless to say, many of them lost their houses and suffered great financial turmoil. Meanwhile I’m still trundling along with my $400/month mortgage. I just don’t get it!

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Kris August 10, 2010 at 7:05 pm

Rebecca, you are in a great spot. You timed things well, and obviously got a great deal on a house.

ARMs always scared me because I didn’t ever want to be forced to do something in the future. I have my 15 year mortgage that will be done in 7 years. I have no plans to move anytime soon so I will just ignore the ‘paper loss’ that is my house.

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Money Reasons August 10, 2010 at 7:08 pm

lol, Suba took the quote I was going to paste in my commment… Oh well, I’ll just write about my area.

We’re pretty static, 2 houses sold on my street pretty much for what they were 3 years ago. So, maybe they fell in value a little bit, but not much.

With the economy and especially the auto industry improving, perhaps things will start to pick up albeit slowly.

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Financial Samurai August 10, 2010 at 8:48 pm

Housing seems to be relatively steady in SF, but have IMPLODED everywhere else outside of SF.

But, with rate so low, and banks lending again, I notice a big uptick in activity.

I think we’re on a slow recovery. Things will be fine, and people should NOT sell now, but BUY!

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Sandy L August 11, 2010 at 10:34 am

I’m in MA in a more rural part of the state. My particular area didn’t double and trip like areas in boston..it maybe went up 30% during the boom, but it only dropped about 10% in the bust.

On the coast, I’m not seeing as much price adjustment as I would have expected. I was just talking to a realtor who services coastal areas and she said people are waiting til the market recovers before they put their summer homes up for sale. Seems like the baby boomers on the coast have more money to hang onto their bad investments in hopes of a turnaround. Foreclosures in the city I grew up though were astronomical and prices plummeted by as much as 50% when the bubble burst. I think many of those mortgages were sub-prime, so these people were skating on thin ice to begin with.

So even in my small state there is a lot of variability in the market conditions.

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Kevin@InvestItWisely August 11, 2010 at 4:24 pm

A perfect storm of artificially low interest rates, NINJA-type loans, no money down, and poor risk management led to the crisis that we saw. It was, by far, a crisis of government proportions and government making (cheap loans being the primary factor).

Cheap loans have led to a run up in prices here in Canada, too, but we might be able to avert a collapse due to much more stringent lender requirements. Insurance is required for loans of less than 20% down, which are hard to come by. The affordability evaluation must be done on the fixed rate, not the variable rate.

Interest rates are also rising, thus dampening the #1 reason housing prices accelerate: Damn cheap credit. I think our market is more likely to slide sideways for a while rather than bust completely.

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Denise August 11, 2010 at 5:08 pm

If only people recognized their income limits.

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Rob Ward August 12, 2010 at 9:07 am

We bought our home in the fall of 2007 and it has gone down in value since then, as have most of the homes in our area (Southwest Ohio).

I couldn’t agree more in regards to having a bigger home. It would be nice to have a little more space, but I don’t want the higher utility bills and other associated costs of owning a larger home. We just don’t need it right now (no kids yet).

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Filomena Zullinger February 3, 2011 at 10:54 pm

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Kris February 4, 2011 at 4:53 pm

Inmostion hosting…

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