Who Would Buy a House?
The S&P Case/Shiller home price index came out this week, showing that home prices hit a new recessionary low — down 33 percent from their 2006 peak and still drifting lower, down 4 to 5 percent from last year.
Pretty depressing for those of us who own a home. So why would anyone buy a house?
A few things to keep in mind. First, there's no point in comparing your home price to 2006. It was only "worth" that much for a brief moment – like a computer stock during the Internet bubble – so get that number out of your head.
Your house is now worth about what it was in 2002, before prices started going crazy. If (like me and other Baby Boomers) you bought your house in the 1980s or 1990s, your house is still worth two or three times what you paid for it. Your home has likely done better than your salary, since average wages have not gone up that fast.
And it's still the same pile of sticks and bricks that it was in 2006. In the same neighborhood, where your friends live and your kids go to school.
If you want to move, it may take longer to sell your house. Or maybe not. Sales of new family homes are down from a year ago, but according to Bloomberg in April they increased 7 percent over March. So maybe you will be able to sell your home — just at a lower price. But that doesn't matter for most people, because wherever you're going to move will also cost less than 2006. You're trading one pile of sticks for another pile of sticks. What difference does it make if you trade them at $500K or $300K?
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