Terrence writes: How far will home values drop?
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Back to real investing. My name is Tim Herriage. Thank you for stopping back by today. Terrence rides, how far will home values drop man Terrence, you’ve got to stop reading whatever you’re reading home values have not dropped in general in the United States. I have not found a single metropolitan statistical area where values, which I look at price per square foot and median sales price are below this time. Last year now are values a little below Jan, uh, may June, April prices, possibly in some places in some price points. Yeah, sure. I don’t think home values in general are dropping or will drop. So I can’t answer your question the way it sounds like the news article that you read wants you to go with this. I, but when you think about the technical aspects of valuation, I think with homes you have two different types of support, kind of the bottom one would be the gross rent multiplier, right?
So it’s the old they used to call it the 1% rule, right? If a house rents for a thousand dollars, you wanna buy it for a hundred thousand. Um, so I think that’s one type of support. So if, if values on a, a $2,000 a month, rent dropped to 200,000, that would be a value support. But I think more importantly right now, since we’re dealing with a national housing shortage that I don’t think will ever be solved, really the support I look at is replacement cost. You know, I mean, so if you have say a home in the mountains of Colorado costs $300 of foot to build and they were selling for 400 a foot, and now they’re down to three 50. Well, I mean, my answer is I, I think they could drop down to 300, but it’s really tricky to get below that number because then you would basically have to say that builders weren’t building or that labor went down or that materials went way down or that land went way down.
And, and it’s just such a far stretch. I don’t see anything technical or, um, I don’t see any data that suggests that home values will drop. Uh, now again, anyone can find an answer anywhere. Percentages are very misleading. The last two years we’ve been operating in LA LA land. Um, so if your average day on the market in Boise, Idaho was five and you read an article that says home, you know, days on the market increased 50%. It’s like, yeah, it went to seven. You know, it went to eight, uh, they double, they went to 10 days. Like that’s just not normal. Right? So watch out for percentages. You know, uh, I recently read, oh, the average price reduction in Phoenix, 26% of listings are having their home. Their prices reduced. And I was like, wow, that’s a lot. And I went and started digging in, you know, houses are selling for 10% more in July, in August than they were in July and August.
Last year now in houses are being put on the market. New listing per square foot are going on to market 20% higher than they were this time last year. So I think what you have is you have panic selling and you have people that are afraid. They missed the boom, putting their house on at stupid numbers and then getting desperate and starting to reduce their prices. And it’s, it’s given the media all they need to talk about, but I don’t pay attention to it. And I don’t think you should either. So in general, I do not think the median home price in the United States will go down until 2025 fair. You have it. I’m probably wrong. Save this. If you’re the kind of person that likes to argue or call me stupid. And you’ll just have to check back with me in 2025, because I think that we only have up to go from here until we way overbuild and oversupply.
And then we may go down a little bit, but my prediction median home price continues to go up for the foreseeable future me borrowing war or any of that crap. So anyway, hope that helps Terrence. Thank you for taking time to ride in. Remember surround yourself with positivity. Don’t listen to garbage or negativity. Uh, if you have any more questions, hit me up. If you’re out there and you’re listening, you have questions. Go to, Ihavelunchmoney.com. Record your record, submit the form. I’ll get the question. I’ll put it on the list. I’ll do my best to get to it. And I just wanna say thank you for spending time with me today, and I’ll see you tomorrow.
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Steve Behringer says
Home price reductions may depend partially on how much home builders discount new construction. I received an email today that Lennar is offerring a sale discount of $30,000 plus 3.99% financing. Their low end floor plan with 1,450 square feet starts around $285,000. Not sure if the $30,000 discount applies to that plan. It is already priced lower than any existing house in that subdivision. First time home buyers might be very attracted to that since they also know that they won’t have any maintenance suprises for the first 10 years – new HVAC, new water heater, new roof, new appliances etc. Price competition is starting!