What Median Home Prices Would Look Like If the Bubble Never Happened

HomeGuide123 ^ | January 28, 2008

[rabscuttle385]

Note that all of the aforementioned properties are in Prince William County, which seems to be part of the areas taking the brunt of the fallout in Northern Virginia right now. From what I understand, it's also pretty bad down in Stafford County.

Not that Loudoun and Fairfax are immune, and I feel sorry for folks who bought out in the counties further out (Culpeper, Clarke, Fauquier, and so forth).

(Disclaimer: My family moved to Loudoun from Prince William, specifically the Lake Ridge area, in 2006. There was a significant building craze in Prince William during our years there...to the point where Old Bridge Road, the main thoroughfare through Lake Ridge, was backed up for miles every morning and afternoon.)

[RSmithOpt]

Use to, the afford ability of a 30 yr mortgage averaged 2-3 times one's gross income(s). Now that number is 5-6 times? Did I miss something as to the whys'?

Kinda slams the lid shut on raising 3 or more children to middle class standard when buying a home.

[narses]

Washington State has DOUBLE the job creation versus the national rate. Jobs matter.

[narses]

“The housing bubble was tulip mania. “

Not quite. Tulips had little or no intrinsic value. Houses do. Cramer is probably right, six more months to clean out inventory and cure the foreclosure gap and housing ought to be stabilized. Maybe.

[metesky]

c.) The cost of states and municipalities adding regulation after regulation to the building codes.

For example, I've heard that some juristictions require sprinkler systems in single family homes.

[RSmithOpt]

Not going to happen. Too many upside down on their loans, foreclosure rate is very high, too much surplus in the 'hot' markets and salaries still not not rise quick enough to cover the prices that will continue to adjust downward.

Seems to be the net effect of outcome based education and our overly status-minded society.

Got a sub going in about 3 miles from my house...advertising "Homes stating in the 450's". Suppose to be close to 80 homes going in....that's assuming there's going to be and additional 80 in the next year or 2 that and have salaries to match and we're in a recession.

Only 2 years ago, the median in my area averaged $250K. This is in what was once a tobacco field 3 years ago in a rural county. We've got several speculative properties around that seem to be on the upscale with the county's largest employer of 680 people just having folded and moving to Mexico.

We got the supply...no way we'll have that kind of demand. One mile from the house, a 50 home sub with homes started at $350K. Construction has stopped with 2 occupants and the model with its lights on.

[FreedomCalls]

There have been at least two ‘bubbles’ that burst since we bought our first home in 1982. It’s called a real estate cycle, and it happens every 10 years or so.

This one is very different from those.

[Eva]

I don’t know where those job figures come from, but the largest employer in Whatcom County, by far, is the county government and schools.

[VegasCowboy]

You cannot appraise a home without consideration of the finished square feet. ROFLOL

Median home prices have nothing to do with appraisals. It is simply the mid-point of all sales that have occurred. As houses get bigger, the prices go up. So the poster you were responding to was correct: as houses get bigger, the median price will increase, even if the price per square foot doesn't change.

[loreldan]

2349 sq ft was an average size home in 2004

http://www.abcnews.go.com/GMA/Moms/story?id=1445039

[Intimidator]

bump

[SuziQ]

The things that makes this different are the prices and sizes of homes, and the expectations of many first time, and move up buyers. The first home we ever bought was a 1500 sf 3br/2BA on about 1/2 acre in NJ. We bought it in 1983 for $82,500, and sold it in 1988 for $189,900. We bought our 2100sf 4BR/2 1/2BA colonial in 1988 for $265,000. Two years later, when we had a real estate correction, the same house would have sold for about $225K . If we sold it today, with nothing updated, we could get about $440K. I know this because a house two doors down from us, and similarly sized, with NO updates, just sold for that two weeks ago. If we'd put it on the market in mid 2005, it would likely have fetched more like $525K; we had it appraised and the value at the time was $530K. Proportionally, the drop isn't bigger this time than it was in 1990, though you hear folks wanting to slit their wrists over the price drops. The only folks it will affect are those who bought in 2005, at the high, and HAVE to sell now, or those who bought then, and want to get a Home Equity loan. We'll still do well, because we've been here 20 years.

Most folks' 'starter homes' are also much bigger these days, mainly because when many couples buy that first home, they are usually a little older, don't have kids, and both are working so they want something bigger and more expensively appointed. They don't want bare bones at that point, because they believe they deserve better, and that they can 'afford' those homes. Thus the median new home has risen dramatically in size over the last 20 years, along with the price.

Yes, there was a run-up in the late 90's and early 2000's, and some of this had to do with folks who thought they could make a quick buck in the real-estate business, but that wasn't the whole story. With the easy mortgages, and nothing down financing, a lot of finance shysters moved into the market, and helped convince many folks that they could now afford to own a home, when they probably should never have done so.

[Notary Sojac]

There is a common misconception on FR that the mortgage meltdown is comprised of “the poor and minorities” on whose behalf the Government twisted the arms of lenders.

That’s a portion of it, and probably a way overrepresented portion in MSM sob stories.

There was also plenty of bad loaning to white middle class folks who: “bought” a $700,000 house on a $60,000 income, “bought” second and third houses to flip based on fairy-tale projections of home values, or were serial refinancers, turning paper equity into cash to buy shiny toys or make other bad investments.

[Notary Sojac]

You are 100% right.

I grew up in a Chicago bungalow, 1000 square feet on a 25X100 lot, and until I was 15 I shared a 10x11 room with my brother (bunk beds).

My parents' "master bedroom" was 12x12 and all four of us shared one bathroom.

I never felt in the least bit "deprived". Compare that with buyers today who apparently think their family will be emotionally crippled for life if each member doesn't have a private 300 square foot suite with plasma TV and Jacuzzi.....

[Notary Sojac]

We bought acreage in Morgan County WV back in 1988. Just about as far a commute from DC as anyone dares to make, since they put the rail line in at Martinsburg.

Classic boom and bust from 2001-2006. I'd be crying except that I bought it for an eventual retirement home, not an "investment"

[rb22982]

Subprime ws pretty typical in 2005 and 2006 making up 16-20% of mortages (it should be less than 5% and require 20% down). If you included Alt-A (which isnt much better than subprime), it goes up to around 50%.

[giotto]

Tulips had little or no intrinsic value. Houses do.

Tulips had as much value as any other cultivated flower, plus they were exotic and expensive to grow. But the price for one tulip bulb, at the height of the tulip bubble in early 17th cen. Holland, was from 7-40 times the average yearly income. Since houses in the San Francisco Bay Area are still selling at 10 times the average yearly income, you are suggesting that after a modest correction, prices will go beyond that? A house may be useful as a dwelling, but only to the extent that the owner can reasonably afford to live in it. Beyond that, it's just speculation, i.e. a bubble. People were buying houses to flip. They thought they could live there a while, refinance to pay their bills and buy stuff, then resell for a profit. This worked until prices reached ridiculous levels. Enough people began to question paying $625,000 for an 800 sq. ft. shack on a 3000 sq. ft. lot, and sales slowed to a trickle. The only thing that was keeping the bubble going was the belief that the bubble would continue.

Cramer is probably right, six more months to clean out inventory and cure the foreclosure gap and housing ought to be stabilized.

Six months will not correct a condition that was years in the making. It will be at least three years before the market turns around.

[Freedom_Is_Not_Free]

Regardless the cause, house prices far in excess of incomes and rent should have caused a decrease in home sales, not an increase. But the bubble mentality and garbage loans got many people into homes that could not afford, pushing ownership to an all time high.

I agree with you, prices were up beyond just the effect of easy money, but larger sizes, and regulations that add tens of thousands to the cost of a home added to those rapidly growing costs. Home ownership rates should have tumbled to reflect that growing chasm between prices and incomes, and probably will do so now that the bubble has burst.

[Freedom_Is_Not_Free]

That is why house prices will plunge. Supply and demand. Todays incomes fall short of todays home prices. The only other solution is MASS inflation to inflate wages so McDonald’s employees can afford a starter home.

[Freedom_Is_Not_Free]

If you didn’t have a chance to read the full article, their point was that this is not a local problem, but nation-wide. Without doubt there are areas that did not take part in the bubble. There are areas like Seattle today where prices are still going up. But the point of the article is that this was not a local bubble, but a national one. No state was immune.