Got a call just today from a buddy of mine in Reno, NV, one of the most bubbly of the housng markets. He and his wife bought a townhome for $225,000 three years ago or so. No money down, etc. (Countrywide mortgage) They want to sell. The realtor recommended a price of $75,000.
We’ll be paying for that one.
People on FR who have been paying attention to the housing bubble posts for the last two to three years have seen me thumping the table, saying that double-digit percentage declines in the value of housing was not impossible. I’ve pointed out repeatedly that housing is like any other asset class — it is possible to over or under-value it.
THE market that made me such a whinge on the subject of home prices was Reno. When we’d drive into Reno from our farm 250 miles to the east in the middle of nowheresville, NV, I’d see these developments going up like boxes of schlock California tract housing. Then about 2006, when I’d be driving through some of these developments during the day, I’d notice very few “For Sale” signs - yet, there were some developments where 50% or more of the houses appeared to be unoccupied.
Upon stopping and talking to people in a couple of these developments, I learned that people with NO experience in real estate development, investing, etc - had decided a) that they liked their house so much, they’d b) buy the houses on either side of them - with a down payment of equity cashed out of their owner-occupied house, and they’d then use that on a low-down or funky loan to buy the house (or houses - nb plural) on either side of them for speculation.
These were just Joe Bob Homeowners, speculating on residential real estate.
That’s when I knew this crap was going to hit the fan. I liken that moment to ones like Bernard Baruch getting stock tips on Wall St. from the shoeshine boy — it tells you that you’re near or at the top of the market.