I want to share a housing market anecdote that happened to me today at work. A colleague just put his home up for sale. This will be the third house he's bought and sold over the last 10 years. He's 'made' tons of money. He was excited that the houses in the area he is moving to just went UP to $500k. He's so glad he “locked in” last week lower than that. He has a new baby and the daycare is $800/mo. The new house is near relatives so he gets rid of his daycare costs but his mortgage goes UP another $400/mo. He is ecstatic about the savings. I proceeded to show him the housing charts from this month's EWFF. I told him that he should rent for a while. He would NOT listen to reason.
We are in the HVAC industry at my company. Our biggest seller is residential circulators (his division) to new housing starts. Business has been slow for the last three months. I told him that even our business is slow which corroborates the slowing economy due to housing. He STILL won't listen. He's signing up for that mortgage anyway. Apparently he thinks he is invincible. I have been asking the old-timers around here about what the company does during hard times. If they don't lay people off, they make us all work 5 days but pay us for 4. Can't imagine that will be good when you have a $500k mortgage!
-Gene
Ride the housing price roller coaster, and you’ll realize why your colleague is so enamored with his new house. Home prices have been going up almost the whole time since 1970. Unless he’s over 65, he’s hardly ever even experienced a decline real home prices. In nominal, terms he never has. But a delcine is clearly underway now as the National Association of Realtors announced today that sales of previously owned homes will probably tumble 4.6% to 6.18 million and the U.S. median home price will likely fall 1.3% to $219,100 in 2007. A month ago, NAR said 2007 home sales will slide 1% this year. So, the decline is definitely gaining speed.
Apparently, this takes some getting used to. The roller coaster doesn’t even reflect the initial dip. The computer animation of home prices over the last 110 years does, however, reflect the sky-high level of current prices. Also notice how much more common dips were in the early years of home ownership. This is the more natural state. As with any coaster ride, there is a slight hesitation as real estate makes the turn from up to down. But soon the trip down will be happening much, much faster than the grind higher. It’s scary, but it can be kind of fun -- when you know it’s coming. |
