During the housing bubble in 2003 – 2005, I had a funny feeling housing wasn’t very stable. It’s not that I’m a financial or housing wizard, it was just that prices were ballooning out of proportion in my neighborhood, especially when you compared it to the average salary. I couldn’t understand how someone who made $54,000 annually could afford a $620,000 house. Now we know that they couldn’t.
However, a funny thing is happening again in the housing market in my neighborhood; houses are jumping in price by 30% or more. Now, it’s not like housing ever really “bottomed” out here – housing prices did dip a bit, about 15-20%, but they were still very expensive compared to the rest of the nation. Instead, what appears to be happening, is the best deals and prices are being purchased by investors and the remainder of the inventory is in limbo leaving a very small available inventory to choose from for potential buyers.
Now, I can’t exactly tell you how I know there are a lot of houses in limbo, I have a trusted source in D.C. who has made it very clear that there’s a huge “shadow” inventory that banks are not releasing. It seems again that banks are manipulating the market by not releasing these foreclosures to potential buyers.
Crystal ball, what do I see?
Based on what I am seeing, what I know, and how the market is soaring in my own neighborhood, I predict an increase remaining throughout 2013 and then come second or third quarter 2014, another dip in prices to better reflect the “real” prices of the market. By the end of 2014, I’m guessing the market will finally stabilize and prices will remain flat for a while, especially if interest rates continue to inch up.
I could be wrong about the time frame, but I’m sure there will be another decrease in prices soon enough followed by a leveling out of prices.
Don’t see what I’m seeing? Let me give you an example:
The circled townhouse below is identical to a townhouse that sold in March of this year for $265,500 to an investor. The investor then flipped the house 2 weeks later and listed it for $359,000. Now, the listing was removed and the unit was not resold. However, the circled unit below is across the way and is listed for $459,000. I don’t think this unit will sell for the price listed since similar units are not selling for this price, yet this is what some realtors think they can get and gives you an indication of the overall feeling about real estate in my area. INFLATED!
You might also notice that prices in my neighborhood are high (which is why I rent in this neighborhood). The lowest price listed here is under $300K (behind the yellow circle) but it’s a small condo. The remaining prices (above $500K) are modest homes in an equally modest neighborhood, but you can’t find anything under $549,000 for a house.
Using Michael Bluejay’s mortgage calculator if I purchased a $550,000 house at 3.75% (being realistic), buying is more profitable after year 11. But my monthly payment with everything factored in would be over $4,000 a month! Ouch. According to his “how much home can I afford” calculator, I can only afford a $349,000 house based on my data. Obviously, I’m out of luck, at least in the neighborhood I currently live in which means I must wait and see if my prediction is accurate.
What are the real estate trends in your neighborhood?
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