I’ve watched the housing boom and bust with great interest. I got into the market in 2004, just in time for the big action. I watched the value of my house more than double and then drop to below what we paid.
I live in a small subdivision with about 100 homes. It’s laid out in such a way that everyone lives on a cul-de-sac. It’s a housing boom kind of neighborhood, newly built McMansions on tiny lots. The idea was to pack as many houses into as little space as possible. But hey, I love my house and I’m happy with my purchase, even after the bust.
I have 11 houses on my cul-de-sac. I’ve gotten into the habit of taking the temperature of the housing market by looking out side my front window. At first everyone was very happy. Prices were going up. Home equity lines of credit financed backyard landscaping and expensive cars. No one sold or moved. It was a newly built neighborhood so we had all just moved in. No one was looking to move again so quickly. A few babies were born, life was good.
Then prices started to falter. Three of the 11 foreclosed. Another one tried to sell but couldn’t face the reality of the new prices and never put the price low enough. Yet another one got a job offer in another state and had to sell at $75,000 below the highest price our houses had seen. I was actually kind of upset with them for selling their house at these fire sale prices. “They are just bringing everyone’s values down with that price!” Looking back, they did the right thing. That house is now worth $135,000 less than they sold it for.
At one point 5 of the 11 houses were for sale. One was bought by an investor and is now a rental property. Two sold eventually as primary residences. The other two never sold and are currently rented out by the original owners.
One more house of the 11 was also eventually rented out by the owners. They wanted to move but didn’t even try to sell because they were so upside down on the mortgage, thanks to a non-existant down payment and a home equity line of credit. Was the fancy backyard landscaping was worth being stuck with a house they can’t sell?
Which leads me to my point. The accidental landlord. Out of the 11 houses on my cul-de-sac 3 are currently being rented because the owner is upside down on the mortgage and cant’ sell. I also know three other people who are accidental landlords.
My whole life I’ve never really known anyone who was a landlord and now I know six people who are renting out their homes while waiting to be able to sell them. I only know the financials of three of those six. Two are breaking even and one is losing a little bit each month. That’s not a horrible situation, but it’s not good either. It tells me that as soon as they can sell, they will. They are taking on risk with little reward.
So what does that mean for the housing market. Obviously, this is an itty bitty tiny sample of people and I’m no real estate expert, but to me it says prices aren’t going anywhere for a while. Why? Because there are a whole lot of homes that aren’t on the market but that need to be sold. I guess this is what they are calling ”shadow inventory”. These homes will trickle onto the market bit by bit and keep prices down. Demand won’t ever have a chance to push prices up because the supply will always be there with yet another house on the market.
Another little trend I’ve noticed in the last few months in my little cul-de-sac is families doubling up. We now have two houses that have two full families living there. I don’t know if this is the new reality or just coincidence in my neighborhood, but it’s interesting.
What’s going on in your neck of the woods?