Housing Bubble Must Deflate Further

Case-Shiller-updated1

I look at this chart, and it makes me want to heave, as we were first time home owners in 2004. I blame grad school. If we hadn't wasted all that time getting a worthless degree, we could have had real jobs and bought earlier. Maybe if we sell now and rent for a year, we can stem the hemorrhage of cash. 

On the other hand, if you look at this dip in relation to the dip that occurred during the Great Depression, perhaps we can expect the prices to go back  up, when the economy improves. 

13 thoughts on “Housing Bubble Must Deflate Further

  1. We bought in 2003, but I’m hoping it is still 1999 in Pittsburgh. Which doesn’t seem that out of the question if you walk around and count mullets.

  2. “If we hadn’t wasted all that time getting a worthless degree, we could have had real jobs and bought earlier.”
    You might have just moved up in house again in 2004, negating the benefit of having bought your first house earlier. I know a couple of families who did so well in the boom housing market that they stretched way too far for their current homes.
    We had several housing misfires. We moved to DC in 2001 for my husband’s first tenure track job. At the time, wrong side of the tracks homes in Montgomery County, MD were around $180-$200k, but we didn’t have a down payment. We did two years of (for us) breathtaking rents and then did four years of free housing in residence on campus. That was a godsend. Theoretically, we were going to save up a downpayment while we had free housing. In reality, we had a really good time in residence, but had not made any progress toward a downpayment. The local Thai restaurant got our downpayment money. Meanwhile, between 2001 and 2006, housing prices had doubled. Oops. Off to Texas!
    On the bright side, if we had been the careful little ants we ought to have been, we would have bought on the wrong side of the tracks in Montgomery, MD just in time for the top of the market. Over the next couple of years, we would have lost 50% of the value of our home while the loan remained around $400k.

  3. “Maybe if we sell now and rent for a year, we can stem the hemorrhage of cash.”
    If you can cope with renting, that would be very smart. As I’ve mentioned, the cracks are just starting to appear in the very nice neighborhood I have been watching for the past four years. There’ve been large price drops before, but I feel like there’s suddenly a new downward momentum.
    I’m in the process of convincing a West Coast relative that now may be a very good time to sell their house. There’s a sudden surge of Chinese buyers in their area, which I find suspicious, especially after all of the stories about Chinese ghost cities that we’ve been seeing. It may be that these Chinese buyers are the last wave. Without them, the market there will have to depend on the local salaries, which are not that high. Unfortunately, the bubble seems to divide neatly into two phases everywhere:
    1. It’s different here.
    2. I can’t sell my house! Who could have seen this coming!
    It’s really difficult to persuade someone in phase 1 that phase 2 is right around the corner, even after reams of newspaper stories have been written about the exact same thing happening around the globe.

  4. That kind of thing already happened years ago, at least in the city. The city sold the unpaid tax liens to some company for X cents on the dollar. The company collected so little (because the houses were worth less than the taxes) that a few years later, they sold the liens back to the city for less than they paid for them. The city will push down the house and give it to the neighbors as a yard.
    Of course, in plenty of areas, they aren’t any neighbors at all or any who can keep a yard. There are way more abandoned houses than they can demolish (or even board up). Much of Pittsburgh (and some of the suburbs) are effectively feral. But, that kind of stuff has been happening for years and it doesn’t seem to have had any impact on prices in any of the plausible areas.

  5. “we would have lost 50% of the value of our home while the loan remained around $400k”
    Jingle mail, jingle mail, jingle all the way…

  6. We’re having fun with our house, nobody can tell us not to paint the vestibule purple. We were talking with a kitchen guy once and he said, of one of our ideas, ‘that’s not going to help your resale’ …silence… ‘oh, this is your pine box house, right?’
    We’ve been here 25 years, and expect another 20, then we die and our second son is already campaigning to inherit it. So the real-estate-industrial complex is not getting rich from commissions here. We’ve been fortunate that the city to which we moved after grad school has continued to be a good match for us – and it makes us really insensitive to news about the real estate market. Prices have dropped a little, but not to the level I paid buying, and we’ve already gotten 25 years of housing services. For us, it’s been a good deal.

  7. I tell everybody to paint their vestibules purple. And if they don’t have a vestibule, I tell them to demand lower taxes until they have enough money to buy a house with a vestibule.

  8. Actually, I’m not sure if I have a vestibule or not. We have a little hallway by the front door. It isn’t a “room” but it is separated from the living room and you can’t do anything but pass through or hide in the coat closet. I think that counts as a vestibule.

  9. Our whole house is eggshell. My in-laws and I painted it and wanted to do as little masking and brush cleaning as possible.

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