i have thought the same way you do….look at what the house was selling for in 1998 or so..then apply a more NORMAL rate of appreciation, and do that for 1998-2006 to arrive at a figure that would represent what the house *should* be worth had the market not run up so out of control.
here is my question – what do you do for houses built in say…2005? houses built and SOLD in the heat of the market increase…so these houses have a basis that is already out of whack..
will these new homes also drop in price…i mean..what happens to an entire community of homes that were sold for roughly $500,000 a piece….when prices start dropping… i can see how the 6-8 year oldh omes..that were bought for $200k…never refinanced…it would be easy for sellers to drop prices if they had to sell..they wouldn’t lose beyond their basis..they’d only lose potentialprofit… but the people who bought recently… and how have houses dropping in value..will lose money…it will cost them to sell..
like the house I am renting. the buyer bought it a year ago for $440k. they did the backyard (nicely) probably cost them 10-15k….window treatments… the hous was a Lennar “EI” home..so it had all the bells/whistles standard.. granite, flooring was included in the price on this house…etc etc..
the person tried to flip it at $550. then dropped the price to $525. the realtor said theo nly offer they got was $475k and the seller rejected it. the house then sat, didn’t sell, then turned to a rental and I took it. $1400/month. a steal. beautiful brand new house. 🙂 cheaper than some apartments in this area! (Temecula)
the owner now has offered to sell it to me for $440k. essentially waht they paid..they just want to walk away. the problem is a comp down the street just sold for 430k…and if *I* bought…being that no agents are involved..and that prices normally include agent fees….like that $430k..that sold with agents..sot he seller only realy realized $400 or so… so I’d expect the price to me would be even lower than 440k… but here is a owner who paid 440k…and can’t bear to lose money..
what happens when an entire neighborhood has this problem… will whole neighborhoods drop in value so that peole are stuck with their homes or faced with foreclosure? it would be great if this neighborhood would drop in price to a realistic level…but can that happen on a grand scale to neighborhoods that are so new and where EVErYONE bought high?
i’m not sure what will happen on my house. the rent is so cheap it’s hard to even consider buying. to buy it i’d have to suddenly pay MORE money…just to say “i own it”..but nothing would really change…same house..jsut a differnt name on the property records…
when these houses were NEW it didn’t make sense to buy them. at 440k NEW this house was overpriced. it cost more to buy it and carry the house than to rent it. so the only way it would make sense to buy it is if the prices go BELOW what they sold for.
i have seen some new development wher the builder has dropped price…you can see some peole who bought in earlier phases who have for sale signs on the house..i pull the flier and they want MORE than the builder is selling the new one for..and the builder has no closing costs, all kinds of incentives. free upgrdes that the original buyer dind’t get…so what happens to THAT guy…who is trying to sell his house for $550k..and the builder is selling a better one at $500k..the guy selling is scrweed…assuming he really couldn’t afford that house in the first place..and has an ARM….he’s just goin to have to walk away… most people buying these big $$ houses in temecula area do NOT have cash reserves or other $$ investment where they could write off a loss and at least survive…most of them would take a $40k loss and go bankrupt…
