Home Prices

As the chart shows, even with the collapse we have experienced since 2005, we are still at levels that look outrageously high given a normal progression. If we were to return to something like 2001-2002 prices, we would still have a LONG way down to go. The early 2000’s bubble corresponds almost exactly with the low rates from the Fed that were in place to combat the dot com collapse and the EnronĀ scandal.

Add to our still-inflated prices a falling birth rate, retiring baby boomers and people with one kid or less who don’t exactly need 4,000 square feet and massive kitchens because they never eat at home and I think that we will see malaise in housing for at least another decade.

Our Short Sale

Last week we closed on a short sale here in Virginia. Our house sold for about 158,000 dollars less than we paid for it. It lost that much in 4.5 years. Some lessons learned:

* The sale took about six months to complete. The process restarted at least once and the closing date was extended a few times.

* The banks are government-sized bureaucracies. The left hand doesn’t know what the right is doing. You aren’t dealing with a person, but a system. One side was pushing along a foreclosure while the other was working with us on the short sale.

* We had to stop making our payment in order to play this game. Although our payment really was killing us, you can’t do anything until you fall behind. The bank only works with those who quit paying. For us, this was no huge loss as we wanted out of the house and had a good situation to get into on the other side. It made eminent sense for us to do this, but it’s not for everybody.

* We maintained our homeowners policy on the property and continued to pay utilities throughout the six months. The house was well-maintained and I think that helped us, although I’m not sure.

It is good to be free as Mr. Gallagher said!

The Housing Crisis – not Over by a Longshot

There is a hope out there that the housing crisis is passing and that prices have bottomed out. I doubt it. According to Zillow our house is worth $73,000 less than when we purchased it three years ago. I brought this up at work last week and another guy said that his house is worth $200K less.

This means that there will be years more of people walking away from their homes, defaulting, or stuck in places they need to leave. And if values were to somehow rebound to where they were, it would mean that the bubble had been re-inflated and we would be back in inflationary la-la land.

It’s a mess and I don’t see a good solution. I think there will be more bankruptcy, more pain, and a general reset of the playing field. We need a year of Jubilee.