Poll:Let the housing market collapse

[WhoDaresWins]

It seems that my friends are a mix of divorced, a sliver of widowed, and the large majority in long time first marriages, mostly harmonious but occasionally fractious (but not to the point that divorce would enter the picture). Here in western PA many people are ethnic, Catholic and grounded in tradition with close extended family ties which tends to discourage divorce.

 

[kumquat]

We're still in a bit of a bubble up here. No, not quite what Florida and SoCal had but our RE used to be affordable to young working people. I wouldn't mind a 50% drop. Here's why.

We paid ~$200K for our house in 1998. At the ROT that Cdn banks use of about 3 years gross income as max to pay, you'd have needed about $70K/yr to buy it (irrelevant since we paid cash). Today it would bring around $500K. Income required $170K. Salaries have not increased to that extent. If the market fell, young couples could actually afford a house. I'd prefer that housing was available to them rather than us having $300K we don't need. That's just me, YMMV.

 

[tryan]

I said "no" to the poll (thinking I would just buy again) ... but in hindsight: we've already dropped at least 35-45%; Another 30% could only be the result of the recession becoming a DEPRESSION.

Yes THAT would hurt.

 

[obgyn65]

ditto

I voted Don't Know, Don't Care. I know the value would be down from my 2004 purchase price...guesstimate of 20 percent. No plans to sell in the forseeable future. I had to have a roof over my head until retirement, and this place is nice and 10 minutes from the office, 5 minutes to shopping and almost anything I could possibly want. I don't have a mortgage. My feelings lean toward letting market conditions decide where the chips will fall. I find the unemployment figures (and underemployment) a more troubling indicator of economic health.

 

[Purron]

Dang, all the discussion of homes around $150K makes me realize how expensive Northern Virginia still is. Current home base is assessed at over $500K (down from the bubble price of $625K) and our very small modest rental is assessed at $325K (down from high of about $420). These are not luxury homes. Even in today's depressed market, I suspect we could sell them fairly quickly for about 10% less than current assessed value. Here are some pics of our two homes. The first place is a very standard 4 bed, 2 car garage kinda place. Nothing fancy, built in the 80s, a gillion places like this in the area. The second place is a small house, build in the 40s (on 2 acres but only about 25 miles from DC). If we didn't have such deep family ties here, I flee for a less expensive area for sure.

 

[Midpack]

Voted No. We own outright, and it's a modest home, never bought as an investment to yield cash for income one day. So if the value goes down, presumably the cost of the next house will have dropped as well, so virtually no impact. Another benefit of LBYM...

 

[jayc]

To me, the question about housing today is: Why would anyone build a new house? Unless you've got a unique situation (limited mobility requirements, a piece of land with utilities that you already own, etc), the large existing stock of built homes offers a lot of selection and great prices. Folks who build new are usually surprised at the costs of all the add-ons needed to make a structure into a home (especially landscaping). Yes, lumber and construction labor are available at reduced rates now, but lots of the more expensive stuff is as costly as ever.

I was referring to new unsold spec houses. Building new would be an option if you were the general contractor tightly controlled the labor and purchase of materials.

 

[FUEGO]

We paid ~$200K for our house in 1998. At the ROT that Cdn banks use of about 3 years gross income as max to pay, you'd have needed about $70K/yr to buy it (irrelevant since we paid cash). Today it would bring around $500K. Income required $170K. Salaries have not increased to that extent. If the market fell, young couples could actually afford a house. I'd prefer that housing was available to them rather than us having $300K we don't need. That's just me, YMMV.

That's the bigger picture that I think gets ignored too often. Would I love to pocket a half million quick bucks from a rise in the value of my house? Sure! Would I enjoy the prospect of my kids not being able to responsibly buy a house in the area? No.

To respond to OP's poll, if we saw a 30% drop from today's rough estimated price, we would be back at almost exactly the price we paid back in 2003 when we bought it from the City. We would still have a 20% equity cushion after the 30% drop since we only cashed out the equity once (to invest in the stock market) and have been paying the mortgage down aggressively since then.

To put a 30% drop in perspective, it would result in a reduction in our net worth of under 10%. Not inconsequential, but not a really big deal overall.

Second and third order effects would likely be much more significant, such as the stock market crashing (maybe) and the housing/real estate development industry I work in going to crap (to a greater extent).

But I might be able to snap up a ton of rental properties for cheap and in 10 years be filthy rich (or maybe just filthy).