I am frequently asked the question: How much lower are house prices going to go?
The answer is 80.
If this is reminiscent of the movie, The Hitchhikers Guide To The Galaxy, where the universe was awaiting the The Answer to Life, the Universe, and Everything. In the story, the Deep Thought computer (after taking nearly 7.5 million years) has calculated the answer to the ultimate question to be 42.
When the people are upset with the answer, Deep Thought tells the programmers that they should have been more specific in the question they had asked.
Similar, too, is the answer to the initial question of how much lower will housing prices go?
When I responded with 80 I meant it as a threshold. My reasoning is illustrated with the listing of home on the market in the city of Oakley in east Contra Costa County that was built in 2006, is 2,373 square feet, 4 bedrooms, 3 full bathrooms, on a 8,249 sf lot and is an REO (Real Estate Owned - foreclosure) for $189,000. That works out to be $80 per square foot.
That is a sales price less than what it would take to build the house even if you got the land for FREE. The construction costs, materials, and permits would far exceed $189,000!
So the question should be more specific to areas within the county and city. Some areas (even within the same city) have more room to adjust while others, like Marin County, and San Francisco have experienced very little downward adjustments in value.
Stay tuned for more ups and downs as the Government gets involved in the mess...cause we all know how efficient they are...
ttfn,
Jeff
1 comment:
I guess everything is relative.
What are your thoughts on when would be the best time to buy investment properties? If houses are selling in Oakley below cost, it seems to me that now would be a prime time to get involved. If so, have you seen an increase in investment business or is everyone too strapped for cash? In your opinion, how quickly do you think the market in your area is going to recover? How is the rental market out there? Would you advise clients to invest now or hold off until the economy gets more settled?
I realize these are pretty broad questions, but I'm a novice and still trying to soak it all in.
Thanks!
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