The Housing Market: Flippers Beware

DECLINE-popup According to the New York Times, we're not going to make a profit on houses for another 20 years. My sister and her husband hit the market perfectly. They bought a home for $220,000 in the early 90s, and three years later, it was worth double the price. Steve and I bought a home four years after they did. After all of our renovations, we would probably break even on our home, if we had to sell today. Home prices haven't plummeted around here, like they have in other parts of the country, but they did take a hit.

If people stop looking at their homes as investments, what's the long term impact? Less home renovations, for sure. Fewer McMansions, as people put their resources into the stock market rather than into luxury homes. What else?

10 thoughts on “The Housing Market: Flippers Beware

  1. Well, I’ve never looked at my house as an investment, so the work I’ve done on it is to make ME happy, rather than some future potential buyer. And I’ve been actively paying down the mortgage and will easily have it paid off in 15 years from when it was purchased.
    I’d like to think that without expecting their home to be an investment, people would think more about what they can actually reasonably afford, and what they really want in a home rather than resale opportunities.

  2. What’s funny is that we will have a bit of a windfall in the next few months and plan to pay off our mortgage rather than do anything else like invest. We like the idea of having no debt whatsoever.
    Part of this windfall comes from selling my FIL’s house at the height of the market.
    (Note: this is after setting up an emergency fund and maxing out retirement accounts, fwiw. I read my frugality blogs.)

  3. I would agree with Sarah. People will still refurbish their homes but for themselves and not resale. That’s what we are doing with our house. I wrote about this in a guest posting at The League:
    http://www.ordinary-gentlemen.com/2009/10/new-concepts-in-home-ownership/
    In Europe homes are seen as a family center, a home base. Somewhere your kids and grandkids come back to visit and eventually take over themselves. My hope is that if we start to think of homes as a longterm possesion of our family we might build them a little better.

  4. I had lunch with some neighbor moms a couple weeks ago and I heard that one of the neighborhood families had put in a $125k offer on a sprawling 1920s Spanish colonial home currently priced at $250k in one of the best neighborhoods in town. The house’s interior suffers from some serious 1980s decor, so my neighbors weren’t willing to offer more than $180k, and the owners insisted on at least $230k. My neighbors didn’t get it, but I am totally in awe of them. Somebody at the lunch mentioned that this sort of low-balling can be successful if you keep coming back with the same offer. We’ll probably be buying a house this spring and I’ll try to remember some advice that I heard on the Housing Bubble Blog–if you aren’t embarrassed by your offer, you’re offering too much.

  5. Also remember that all housing markets are local. Values haven’t fallen at all in some neighborhoods in Philly, but the flip intensive market areas saw serious fall off. Around here, flippers were primarily speculators and not living in the buildings so people aren’t really treating their primary residence differently.

  6. I think it will have an effect on college tuition in the long run. Until now, a lot of upper middle class families have taken out second mortgages to pay for their kids’ college fees. There are a LOT of rich kids, but not enough to pay for tuition at every private school in this country and a lot of the colleges want variety anyway. I honestly think the constant inflation of college tuition will slow in many cases because there will be fewer people who can afford it. I work in academia so this is good news/bad news.

  7. “I think it will have an effect on college tuition in the long run. Until now, a lot of upper middle class families have taken out second mortgages to pay for their kids’ college fees. ”
    I think this is more generally true of other luxury goods. Somewhere along the line, 4 years at a private college (with all the amenities) became a necessity (fueled by a generalized feeling of unrealized wealth). I think that belief in unrealized gains justified a lot of people over-spending on house renovations, college educations, boats, second homes, private schools, and other things that would have been considered luxury goods back in the day.
    This isn’t good for the economy — because people were employed doing all those things (providing college educations, expensive renovations, private schools, . . . .).
    And, I don’t see money fleeing to the stock market instead of luxury homes. The news reports say there’s a huge contraction in small investors in the equity market, too.

  8. If people stop looking at their homes as investments, what’s the long term impact?
    Well, that’s already the status quo for the majority of the midwest—we don’t think of our homes as investments to sell for a profit, but to keep our living expenses down after retirement (no mortgage). Almost all home renovations around here, whether in the tonier suburbs or in the hood, are for the folks who live in the home—not for possible resale. That’s especially true in low-income neighborhoods (like mine) where DIY rules the day.
    In short, more middle-class people are going to start financially thinking like working-class people.

  9. We just sold our house last month (went in 30 days). We bought in 2003. We sold it for roughly 40% more than we paid for it. By the time you factor in the improvements over 7 years and real estate fees, we did a little better than break even.
    But we got our original down payment back, as well as the money we spent on it, so we came out with cash.
    I look at it as we got to live for free for 7 years. It would’ve been nice to make money, but in this economy I feel like we did pretty well.

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