Let’s put numbers to reduced housing prices

Implications: When the housing market moves up, it moves up at a rapid clip or so it seems. We spend so much time enjoying the new wealth if we are home owners or involved in the housing industry that time seems to fly. When the market slows or dips, the process seems to take forever. And, in truth, it does take forever if forever is five to ten years. Those who have enjoyed the rise usually have developed a certain measure of liquidity to handle shortfalls and there may be no observable difficulty for a while. But eventually the cycle breaks the family bank and problems accelerate for the home owner and the building/realty industries. Running out of cash in this cycle is going to be joined by flat to receding wages for the home owner/buyer and a number of budget buster household expense increases.

Analysis:

The notion of a loss in value of say $ 50,000 on the average market value of $ 450,000 in the Inland Empire of California is the first industry quantification I have seen. To this I would add another $ 40,000 or $ 50,000 for every 1% increase in term interest rates for the median priced home. I think that and more are possible if this administration busts the federal bank in the next 1 ½ years, and probable when the next guys take the first year euphoria opportunity to sweep the decks. Our cheap Republican money is going to be over. Now look at the increasing costs of maintaining, insuring and paying ad valorem taxes on a home, increasing utility prices, family and continuing education and healthcare costs, and you can see that there is an outgo with a value of another say $ 50,000 knocking on these doors.

What we get here is a loss of 1/3 or more of the value of the family home which essentially bankrupts many of those who bought their home in the early part of this century. This phenomenon is a world wide bubble in the upper end neighborhoods of urban areas. We are the only ones who try to deliver a luxury housing product to the average man. And now we can’t do it either as our standard of living retreats for the working class.

The net effect here will be prolonged troubled times for the homeowner and those who are working in the housing industry. All service companies will have trouble avoiding the auctioneer’s gavel. Those with an investment in real property will endure prolonged absorptions with a redesign necessary to meet several unanticipated changes in an extended planning cycle.

As always, it’s easy to get into real estate deals – just pay the most for the property and do it the fastest. Getting out whole, well that’s the rub.