A stunning house value plummet (at least to me)

Many years ago, my husband and I bought our home in the high desert of southern California for $54,000. We paid it off several years back. Since that time, we've seen values go all over the place. We never worried about it because we liked having no mortgage so we didn't care about equity. Our neighbors listed their little home last year for $225,000. We thought that was probably too high but ...

Yesterday (after the house was foreclosed on because the family there couldn't cover the mortgage), the house sold for $84,000.
We were stunned. The house is in pretty good shape and is on an R2 lot.

We have no plans to sell our home for awhile but it really was a shock. $141,000 drop in one year.

It's a buyer's market. People can offer any price for a foreclosure and bank is happy to take it.

The prices are insanely low. That said, with how deep the upcoming national economic pit may be, I'm not sure we'll bite at any price.

Paid about half of what it was listed for 3 months ago.

It's hard to know what the house would have sold for if they had been able to hang on longer.

I guess that was the "old normal". Oy.

If you are a home buyer, and you have a selection of fire-sale prices available due to foreclosed homes, it forces non-foreclosed sellers to lower their prices.

(since it didn't sell for $225k), but yeah, Florida, NV, CA, MI, OH are getting creamed.

Dr Housing Bubble says to add three zeros to that for the actual home value. Of course, the rents will probably drop some as well. :(

on the difference between the highest price paid or advertised, and what something eventually sold for as if that represents a real drop in value or actual loss of money.

All that actually matters is that your home is paid off, no matter what you paid for it, no matter what it was worth last year, no matter what you eventually sell if for, if indeed you even sell it. Look at it this way: if you pass away soon and your children (or whatever heirs) inherit it, and they then sell it for the same $54,000 you originally paid for it, they will still be ahead by $54,000, since they themselves didn't pay for the house.

The other thing is that in the 70's and again in the 80's there were a lot of poor buying decisions made. A lot of what was then called "creative financing", which involved things like balloon payments. Too many act as if this is the first time any such thing has happened, as if we'd had 200 years of stable, if slowly rising, home values and kindly local bankers who never loaned a dime to anyone they didn't know personally.

And keep in mind that there is also an up side to all of this: there are going to be people getting into the housing market -- and I hope to be one of them next year -- with prices at a far more sensible level than had previously been in effect.

We bought our current house during the S&L scandal that ruined the housing market in the mid 80s. It was priced decently & we got in for $2k down. We're still in it & it's been paid off for about 8 years now. There is nothing quite as nice as not having a mortgage! It provides you with options you don't even think of.

With the exception of this year, every weekend for the past several years, some realtor has knocked on our door & told us they could sell our house "in just a few days!" Problem has been, there is no way we could afford to buy anything in this area! $400k for a 2,000 square foot tract home? :eyes: The market is in serious need of correction. Eventually real estate always goes up, but there are periods where that isn't the case & you have to be able to ride those times out.

"Eventually real estate always goes up, but there are periods where that isn't the case & you have to be able to ride those times out."

Not necessarily. In order for inflation-adjusted house prices to continue rising over the long run, the equilibrium of supply and demand must occur at an ever higher price level (assuming a classical-style free market). This means that either supply must shrink or demand must continue to grow faster than supply. If the population continues to grow as we run out of places to build more houses, then the stronger demand will push up prices and force a larger portion of the population out of the homeownership market until the number of families that can afford houses no longer exceeds the number of houses, roughly speaking.

Of course, real-world real estate markets are a little more complicated than that, but you get the idea? Houses will sell at whatever price someone is able and willing to buy it for. If not enough people have adequate wages and salaries, who is going to buy the houses if they are all nearly a million dollars?

The only reason house prices were allowed to go as high as they did was a combination of bad borrowing (excessive borrowing creates more demand than income restraints should allow) combined with the speculative behavior that tends to form when a bubble starts inflating. House prices are not going back up any time soon - not unless people can once again afford to pay the high prices, which requires wage and income growth among the vast majority of the populace.

"House prices are not going back up any time soon"

I agree, not until prices return to their historical trajectory. The only reason we had the massive housing boom of the Bush years were manipulated interest rates and unregulated mortgage (ahem) "creativity". See graphic below, from August, 2006.

As far as I can tell, the Shiller index posted above ends in 2006. Bet since then there's a big drop as the index gravitates back toward the historical level.

Buying it was the smartest thing we've ever done. Even if our 401K is toast, we'll still have our home. And all those people who bought highly inflated houses and sneered at our paid-off little house may now find themselves living in trailers in our big entirely mortgage-free backyard. :evilgrin:

I encourage everyone to buy one ... these days, at the best price they can find.

So, can I use Zillow as a source for comparable mouse sales to fight city hall?
Or are we supposed to lawyer up and hire professionals?
I'd like to learn how to reduce my RE taxes instead of getting screwed from every direction.

Remember, the house is already in foreclosure. Property in foreclosure sells for a deep discount because from the bank's perspective, the meter is running with lawyers and accountants and foreclosure managers running up costs.

Moreover, foreclosed houses in most states have to be sold at auction where the foreclosed on owner must have an opportunity to bid on his own house (equity of foreclosure), and in most states, the foreclosed property has to sell for a cash sale. Few people have that much cash on hand, so it's likely to be sold to a middle man speculator.

So if the house is worth, say $200G, they will consider that they could easily run up $70G in transaction costs while trying to get the "market price," and that they are auctioning into a tiny market of cash buyers with much lower demand, so they just discount the anticipated costs from the market price and dump the property.

We life in the upper midwest and bought our house right at the peak <boohoo>! Our neighborhood is pretty small right now with many empty lots. There are only about 40 homes here currently. Of those 40, 3 have gone into foreclosure. Our nextdoor neighbors sold their house last year after the husband got a new job and they had to move. When it was all said and done, the were upside-down 70,000$. Current home prices have fallen here in some areas by 30%. It is crazy. You only hear about the big states though.