I was watching the old TV show Perry Mason as I often do at lunch time and was considering why people would murder someone for $5,000 or why someone with $50,000 would be considered wealthy. That’s a problem with old black and white TV shows, they are kind of dated. Anyway, I had to remember that up into the mid ’60′s you might be able to buy a house for that $5,000. That puts a different perspective on it.
With the recent crash of housing prices most everywhere I was trying to put it all into perspective. My parent’s bought a house about 1940 in Bakersfield that I was raised in. It probably cost them $5,000 and included 2.5 acres. It was a nice three bedroom house with big rooms and the yard made for a nice playground. They yard was actually made much bigger because there were open oilfields adjacent to it.
In the early 60′s I remember the family went house looking and similar sized houses with a much smaller lot cost about $10,000. 20 some years and a doubling of price.
In 1974, I bought my first house in South San Jose for $23,000. To me, that seemed like a lot but other areas of town and other nearby towns had ordinary housing going for the mid 30′s. A little over 10 years and another two or three times increase in price.
In 1979 we bought our house in downtown San Jose for $75,000. Five years and the price of a house tripled. The next year, our new neighbor downtown sold his house, 1/2 the size of ours and 30 years older for $130,000. He did it by placing a sign on the main street one weekend and had three offers that weekend. I measure that as one year and a 100% increase. Do you see a problem here?
In 1988 we bought our house in Bakersfield for $95,000. It remained at that price for years slowly rising to about 110,000 by the late 90′s. We decided to sell in 2005 but delayed putting it on the market to do some fixup. Similar houses were now, suddenly selling in the high $300,000 having been in the mid $200,000 just the previous year. All this in a market that one has to wonder why anyone would want a house in. We tried to sell the house ourselves when we were through fixing it up but prices were now dropping. While we were holding open houses we dropped the price each week and still didn’t sell it. When our “listing” with Help-U-Sell over, we signed with an agent who sold the house in the first weekend for our asking price which was now $70,000 less than we started at. It sold for $300,000. That house now might sell for $200,000. A really significant drop in price from the boom we saw when we decided to sell. Bakersfield is typical of much of the real estate market in California, Nevada, Arizona,Texas, Florida, and probably lots of other places to some lesser but still very significant extent.
In 1989 we bought our current house in Palo Alto for $300,000. Six months previously, the people we bought from had turned down an offer of $375,00 for the same house. The market was correcting and fortunately we got in at the bottom. Houses in the neighborhood are now still selling with 7 figure prices. There hasn’t been a drop here, yet. The price increased 300-400% in 18 years.
So what’s the story here? Housing prices rise and fall but usually they drop to their real value after an unrealistic increase to an un-real value. You usually don’t loose money if you buy when it’s priced realistically.
Another thing about housing in the US. People buy too big of a house. Nobody really needs a 2000 sq ft house unless they have more than the usual 2-3 kids. First there is the waste of extra materials and then there is the waste of extra utilities like lights and heating. I think we’re in for an extended period of adjustment in housing. Too much of it, too much of the wrong size, and too much in the wrong place. This adjustment period will take a bit longer than the adjustments in the mid 70′s, 80′s and 90′s.Of course, that’s assuming we do have a soft landing and not a crash.