Are Home Prices Dropping?

Beyond BuzzFeed: Tackling the 25 Toughest Homeownership Questions – #10a

Are we headed for another Great Depression in Real Estate?
The following is the second of a six-part response to Suzanne’s Buzzfeed comment. Here are the links to the full series:

“I was in the process of building a modular home on my small 3/4-acre property but then stopped the process in construction. Ultimately, the interest rates were too high, and my mortgage payment would still be $2,500. I make $90K a year and can’t afford to buy a house. That used to be considered good money. Here in California, home prices are dropping, but I was told that prices have nothing to do with the ‘value’ of a home. I call bullshit. When enough people stop buying at the prices that are out there, and prices fall, then the value of homes is falling. They need to fall off the cliff; we need another Great Depression to bring home prices back down to reality. Big Business has its fingers wrapped around our throats because everyone needs to sleep somewhere, right? It’s a consumable that they have figured out how to wrangle every last dollar out of people, forcing people to be renters forever.” –Suzanne, 53, California

According to a recent Forbes article, experts predict that the housing market will experience a gradual cooling off in 2024, with home price growth slowing down significantly. This deceleration is expected as more inventory becomes available and interest rates stabilize. While this doesn’t mean prices will drop drastically, it does suggest a more balanced market, potentially offering buyers better opportunities to find homes within their budgets. However, it’s important to note that experts from the Forbes article caution that significant improvements are unlikely in the short term due to persistently high mortgage rates and inflation.

I really don’t know who these Forbes’ experts and analysts are.

There are just not enough homes on the market to support this kind of decleration.

The average median home price in California is $739,100, up by 6.5% in the past year. The median sale price will continue to increase due to tight inventory. Currently, the sale-to-list price ratio is at 99.4%, with an incline of 1.3 points year-over-year compared to September 2023. And home prices in general have been on a 4% upward trend since 1989. In the following bar graph from the Keller William Family Reunion 2024 vision speech by Gary Keller, you can clearly see this trend. Of course, we see too the spike of the 2008 housing collapse, and the ten year recovery. But by 2021, we see the recovery. The 93% over the trend line, in my opnion, was artifically created by the Pandemic. Even if we see a dip in prices though, I doubt we’ll se anything as drastic as 2009.

California and Massachusetts seem to top the list of the most expensive states to live in according to the Forbes interactive map above.

However, I can’t really speak about the California or the Massachusetts real estate markets though. I’m on the total opposite side of the country, and whatever I say about your local California market will be incredibly misinformed at best. As for Massachusetts, I'd refer you to someone like Jean-Marie Minton.

I did also want to point you in the direction of a pretty cool interactive map from NBC News that answers the question, “Where could you afford a median-priced home?” Adjust the slider to your income level, and the map will show the counties where the estimated monthly payment would stay below 30% of your income.

My friend Mike Fairbanks said the map wasn’t all that cool. He said the map was pretty scary because Forbes Advisor reported the average annual salary nationwide is only $59,428. The screen shot I’ve included from NBC News illustrates this salary price point. The yellow color says you can afford to live in that area. The blue is a no-go.

According to the map, and according to my current personal incoming salary, if I want to stay in New Hampshire, I should be moving to the very tippy-toppy of the state, Canada’s flannel and Carhart jacket yard-art backyard. I love New Hampshire, so I can say that.

Or at least somewhere in the Midwest. Look at all that affordable yellow in Ohio, Indiana, Illionois.

In New Hampshire, according to a 2022 NH Coalition to End Homelessness report, the vacancy rate for affordable housing is nearly 0%. Under 1% vacancies for apartments. Estimates of needing 23,500 more homes today, and nearly 90,000 new unites by 2040.

The cost of homes is an issue of limited supply and high demand.

Anyway. I think we often forget the term “median” means smack dab in the middle. Half the homes in any market will be listed above the median price point, and the other half will be listed below the median price point. The median price point is a good indicator of what kind of money you need for a home because an average is skewed by the lowest and highest priced homes.

For example, in New Hampshire as of June 16, 2024 we have 2,249 homes for sale with an average of 771,859, and a median of $575,000. But the lowest priced property is $3000 and the highest priced property is $17,995,000.

The majority of the lower end price points are a mix of time-shares, condos, vacation apartments, and cash-only mobile and manufactured homes geared towards a specific type of buyer. I mean, we have a literal camper available in Laconia for $79,900. 304 square feet on wheels—the HOA $1600 a year, and you only have access on a seasonal basis. These aren’t really homes as much as they are get-aways.

We begin to jump into some fixer-uppers in the $100k range, but you really don’t start getting into home homes until the $200k range. So sometimes in my analysis, I’ll chop off all the homes under $200k. Then I lop off anything at $800k or above which leaves us with 1549 homes, which tends to be the more typical shopping range.

For the remaining homes, the average listing price is approximately $511,936, and the median listing price is $500,000. Because I come from a teach background, I go another step to analyze the local market by giving the homes a grade on the curve.

A (Above $800,000): 5 homes
B+ ($700,000 - $799,999): 229 homes
B ($600,000 - $699,999): 231 homes
B- ($500,000 - $599,999): 319 homes
C ($400,000 - $499,999): 282 homes
D ($300,000 - $399,999): 278 homes
F ($200,000 - $299,999): 205 homes

The towns that have the most homes within the B- to D range are:

Laconia: 36 homes
Manchester: 29 homes
Nashua: 28 homes
Conway: 23 homes
Hampton: 19 homes

In Dover, where I live, we have 14 homes in the B- to D range. And just to give perspective, we have a total of 52 homes for sale in Dover. I know this a lot of numbers to look at. My eyes tend to glaze over when reading an essay that includes that many numbers. But the upshot here, the thing I hope you take away, is that there is more nuance to the real estate market than just the general average and general price points that the media like to throw out.

At 90k a year, there are still affordable places to live in California and New Hampshire both. Additionally, a mortgage of $2,500, is a smidge above the supposed traditional 30% of your annual budget that you should allocate for housing.

Navigating the complexities of the real estate market can feel like a maze of numbers and jargon, especially when faced with the stark realities of high interest rates and home prices. Suzanne's frustration is palpable and shared by many. However, it's essential to recognize the nuances that drive these markets.

Yes, high prices create significant barriers, but the situation isn't entirely bleak. As the data suggests, affordable housing options do exist, even in states like California and New Hampshire. It's a matter of understanding the local market dynamics and adjusting expectations accordingly. Partner with a real estate professional who knows your market intimately. Additionally, the interactive tools available, like the NBC News map, can provide valuable insights into where you might find a home that fits your budget--that is, if you are willing to move to another state.

Moreover, the concept of median prices is crucial. It reminds us that while half the homes might be out of reach, the other half could be within your grasp. By focusing on specific price ranges and cutting through the noise of extreme outliers, we can find realistic options.

For those feeling the squeeze, consider diversifying your approach. Look beyond traditional homes to other viable options like fixer-uppers or more affordable communities slightly outside the major urban areas. With a strategic approach and a clear understanding of your financial landscape, homeownership can still be an achievable dream.

Other posts in this series: