Home Prices Take BIG Drop in My City

Here's a piece that's almost a month old (don't know how long the link will last -- they change them frequently) on how home prices have dropped significantly in my city. The details:

The average price of a home sold in the Grand Rapids area during June was $151,142 -- nearly 6 percent lower than last June and 8 percent lower than two years ago.

But this information is actually better than the real selling prices. What do I mean? Well, sellers are offering all sorts of incentives to get people to buy and these incentives are not reflected in the final selling prices:

If a seller offers three months worth of mortgage payments, $10,000 cash back, free propane heat for a year, a plasma TV or a two-year lease on an H-3 Hummer -- all things that have been offered with homes in the past year -- their value would not be reflected in the price used to calculate area statistics. If they were subtracted from the final figure, the home's actual sale price would be lower.

So, the questions remain of how often incentives are used and how much they're worth. Here's an educated guess:

By the first six months of 2007, the incentive values had risen substantially. Out of 36 homes sold, 19 had a seller contribution and those were worth 6 to 7 percent of the price.

"And even beyond that, not all brokers are reporting if there is a seller contribution," Carlson said. "You're supposed to, but I'm telling you that they don't."

So let's be conservative and say that 50% of the homes had extra incentives worth 6% tacked on. This would impact overall prices by another 3% down (50% of 6%) and result in "real" house prices being down 9% versus last year (6% they are documented being down plus another 3%.) Ouch!!!!!

Man, now it's getting REALLY brutal.

Comments

[Rhea]

And this scenario is being repeated all across the country.

[Minimum Wage]

Your Mileage May Vary. In my area, home prices have plateaued but are not falling, and rents are soaring.

[Lynnae (Being Frugal)]

I hope my area follows suit! We're still at 200K+ for a starter home.

[Jake]

"Your Mileage May Vary. In my area, home prices have plateaued but are not falling, and rents are soaring."

Yes, in Minimum Wage's area, college graduates are flooding into the job market en masse, causing rampant unemployment and underemployment. The relatively low wages and poor job prospects availible, however, do not seem to deter people from moving there and buying very expensive houses or paying excessive amounts of rent.

Can we officially call "liar" on MW at this point?

[Minimum Wage]

I will have to dig out the last issue of Apartment Manager, the Portland-area landlord newspaper, but it does say pretty much exactly what Jake thinks is a lie. (I will quote from the article verbatim when I find it.)

This aforementioned issue had a lead article screaming, "Investors Strike Gold!" and celebrating the continued influx of twentysomethings who (according to the article) are coming here for the lifestyle, not for great jobs and high pay. This issue also reported a projection that local residential rents would rise 8.5 percent this year and an additional 6 percent next year.

While unemployment WAS indeed quite high two or three years ago, the job climate has improved dramatically, so unemployment is low today, but wages are lagging. Other than that, Jake nailed the local economy.