The article in today’s Times on Stockton’s housing woes includes a picture of a home for sale, where the broker proclaims, “Priced Below New!”
There was a time when such a sign would have been considered obvious, when houses were viewed in the same way we now view cars. Of course a used car is worth less than a similar new one. Assets depreciate.
I remember a comment made in the 1950s, when I was a young boy, by an uncle who lived in El Paso and had grown up in the Depression. He had just bought his first home, with more than a little trepidation, after renting for years. “I just hope it depreciates by less than the rent I would have paid,” he said. (Or something very close to that. I remember it because it took me a little while to figure out what he was talking about.)
He had seen real estate prices plunge, and feared it would happen again.
People have come to expect that home prices will always rise — in the long term if not in the short term. Those who did not buy were the losers. If that belief is shaken, the effect could be great.
Over the weekend, I talked to an old friend whose Connecticut home has been on the market for two years. He has, he told me, cut the price repeatedly to keep it below new homes in the area, but now there is a glut of such homes.
He had another observation, which was that he was hoping for a buyer who now rents. He has found that bids from buyers who need to sell their existing homes have a way of vanishing.
August 13, 2007, 7:21 am
Making Sense of the Markets
Easy credit in the American home-loan market has turned from a sales pitch to a curse, as the troubles with subprime mortgages have developed into a credit squeeze that is shaking the world’s markets and has made loans much harder to get. Will the latest upheaval pose a threat to continued economic growth — and your own financial security? Today I will be answering questions from readers.
To ask a question or to see my answers, click here.