Does the drop in home prices we have seen so far make the current real estate market affordable? Do prices that have dropped ten percent represent a great buying opportunity? Long-time Seattle Bubble regular Eleua takes on these questions and more with his “House Valuation Workshop,” using his native Bainbridge Island as a working example. Follow along by using home prices, rents, and incomes for your own neighborhood.
by Guest Poster Eleua
Original posted at Clearcut Bainbridge
At the Institute For Economic Reality, we are always trying to help people out of their self-imposed, colo-cranial economic impairments. Judging by the volume of chatter on how the real estate market is suddenly “affordable,” it would appear that we have our work cut out for us.
When home prices have gone up 150-200% in a decade, a 15% rollback isn’t exactly a buying opportunity. Keep in mind that during the run up, the “experts” all predicted that prices would not decline, but would level-off and allow incomes to catch up. When confronted with a slowdown, these same experts said that a 10-15% rollback would represent the “worst-case” scenario.
The delusion is understandable. Bainbridge Island is populated with Babyboomers, and Boomers have seen property prices increase for the bulk of their life. In fact, real estate is the one “investment” that Mouseketeers think they know well. The prospectus for a Boomer’s investment in real estate goes something like this:
Property prices have gone up, so they will continue. My real estate agent said this is the “bottom,” and I had better buy now or be priced out forever (they would never tell me something that is self-serving and against my interests).
Is there an objective metric to value a home? Should you jump all over a home that has been reduced in price $10,000, or wait for a better value?
(Click below to read the rest…)
