house price predictions

Well, several lenders and builders have had to make major cuts – again.  And foreclosures are rising – again.  We’re seeing forecasts of a nationwide decline of 7% in price of homes plus 7% next year – and a lot of scoffers saying double that might be more accurate.

I’m going to come in saying NATIONWIDE the numbers are around 10%.  But houses don’t sell nationwide, they sell locally.  So how can you estimate what the bottom will be?   Me, I’m going to peg a year.  I’m guessing that prices will decline to approximately what they were in 2000 – adjusted for inflation – for a bottom.  Oh – use “per square foot” for a guide if you’re in one of the newer homes.

Even that’s not a great comparison.  Consider my house for example.  It was built in 1972, with additions made since.  All else being equal, at $$ per square foot, people will want a 2002 house in preference to an “old” house.  The key there is “equal”.  Yes, the newer houses are prettier.  But there are reports of shortcuts.  As in – owners houses less than 10 years old are discovering they need to use their warranties, and not all the builders are honoring those warranties.  With all the money going round, a lot of people rushed to grab what they could, and forgot some basics.

And then there’s cost.  I paid about 65-75% what I’d have paid for a “new” house of comparable size and quality.  If I’m breaking even, the person in the new house has to lose at least 25% to match me selling for break-even.  Again, the house is newer and so might command a bit more money – provided there aren’t shortcuts to overcome – but …  most people can’t afford the haircut.

Am I going to be immune to the bubble’s pop if I try to sell in the next year or two?  No – or at least probably not.  But I can probably break even — at worst I can make deals that are a LOT more palatable to everyone (including my wallet).

Take a look at the square foot price for your house (or housing area) in 2000.  If you are in a place where there was HUGE construction in reaction to the bubble, consider using 1996 for your guide.  Adjust for inflation (use 3% per year for a worst-case number, 5% per year for optimism).  That – for most of us – is the bottom.  For me, that’s about $3000 less than I paid for this house.  For the housing development about half a mile from me, it’s an average loss of $40,000.

I just don’t feel so bad.


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