My husband and I are looking for a retirement home. We’ve visited many places in the past three months by driving from Seattle, Washington, to Corpus Christi, Texas, and back. We visited Tucson, Arizona; Houston, Texas; Oklahoma City, Oklahoma; and Lafayette, Louisiana. Right now we’re in Florida.
In many places, we’ve driven down the streets of neighborhoods and found three, four, five homes for sale on the same block, block after block. Many of the house listings are over 6 months old. Ergo, housing market meltdown demonstrated effectively. When asked “What’s happening, why are are all these homes for sale?” locals responded “because of the drop in the price of oil.”
In my own home town of Renton, Washington, a town south of Seattle, the situation doesn’t look anywhere the same. A real estate salesman friend told me however, “don’t even try to sell your home right now.” Several of the houses in the neighborhood have become rentals. Several sold, but for a median price a good 20% down. The range is about 6-25%, depending on whether bad finances are involved. For a home buyer and seller the story looks foggy.
Meanwhile, I’m studying physics. Why this is important is that the first thing you learn in physics is “error propagation.” Error propagation is all about how an estimated digit added to other estimated digits can be nonsensical. It’s also about range data, that 6-25% home sales price and the meaning of standard deviation. How can prices drop so fast?
According to the headlines, President Obama is responsible for a problem he inherited from President Bush and now he’s doing his best to help out, but trying to sell taxpayers on a bad bet caused by ineffective and shady mortgage lenders. Well, this is true and not true, but it doesn’t really help me or my husband buy or sell a house.
Certainly, the slow economy, drop in housing prices, stiff mortgage lending policies, drop in the stock market, and rising unemployment all contribute to what economists refer to as the demand curve. Fewer buyers mean fewer sales. Increased sellers means poor competition.
Housing prices reflect the current housing market and economy, but they also reflect the underlying asset. Land has an inherent value. The cost of building has a given price per square foot. You get what you pay for, except in a bubble. As a home buyer and home seller, my husband and I feel that assessed property value is a good baseline for where a home should sell. Home prices in our area are now selling near assessed property values. I expect when we actually decide to buy a house, the home we buy will sell at assessed property value.
The housing market meltdown and the stock market meltdown and to some extant even the price of oil all have to do with valuation and standard deviation from the norm. The meltdown was caused by over-optimistic belief that prices can only go up. This is not true. When buying and selling a home, be sure to get what you pay for and be sure that it is what you really want. My father passed on a little advice before he died “make love to your wife, not your home.” Same applies to all the things you own in life–don’t buy into bubble dreams and give up what you love most.
And don’t blame President Obama in his first 100 days of office for the events in the world at large. Appreciate his resourcefulness instead.