Are We Heading for Another Great Depression in Real Estate?
Where the dream of homeownership seems increasingly out of reach for many, a recent Buzzfeed article captured 25 critical issues that today’s homebuyers are grappling with, from trying to afford a home on an average but good paying salary, market misconceptions, and speculative buying…
This blog series aims to take a deep dive into each of these 25 Buzzfeed issues. We’ll explore every facet of the current market conditions. Each post in the series will tackle one specific concern, providing insights, expert analysis, and practical advice to help you navigate the complexities of buying a home in today’s economic environment.
Whether you are a first-time buyer, a seasoned investor, or simply curious about the state of real estate, this series will provide perspective to help you make informed decisions.
With some of these widespread concerns laid out, let’s dive directly into one of the Buzzfeeed voices:
“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
Suzanne, there is a lot of pent up emotion and a lot to unpack in your comment. I have opinions, but not sure if i have any specific advice. Plus, I tried answering you concerns in a single post, but at the 6000 word mark, I felt like no one would want to read that. I wouldn’t want to read that!
I’ve broken up the response into six individual blog posts, and have provided an overview of each section here.
Are Home Prices Really Dropping?
First, I wonder who told you home prices in California are dropping. The average median home price in California is $739,100, up by 6.5% in the past year. Experts predict 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.
The Reality of Home Value vs. Price
You mentioned that prices should reflect the value of a home. While it’s true that market prices often reflect demand, the “value” of a home can be more subjective. It’s influenced by factors like location, local economy, and personal circumstances. When enough people stop buying, prices may fall, but this doesn’t necessarily mean the intrinsic value of homes decreases—just their market value at that time.
Crisis and Recovery: A Century of Housing Market Challenges
Your call for a dramatic market correction like the Great Depression is understandable but complex. The Great Depression exposed the deep flaws in the American Dream, showing that hard work alone could not guarantee economic security. It led to widespread foreclosures and a significant decline in home values, but this also meant that few could afford to buy homes, halting construction and exacerbating economic woes.
Current Market Dynamics
Today’s housing market dynamics are influenced by various factors, including:
- Limited Inventory: A scarcity of available homes keeps prices high.
- High Demand: Driven by demographic shifts and changes in living preferences due to the pandemic.
- Rising Costs: Both material and labor costs have increased significantly in recent years.
Conclusion
The issues you’re facing are symptomatic of larger systemic problems in the housing market. With insights into median pricing, government interventions, and local market dynamics, we provide a roadmap for potential buyers.
