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.