Keeping Tabs on the (Popped?) Bubble

Guest Post by Eric Peters

Has the current housing bubble – which inflated such that it apparently now costs around $400k to purchase the average home – popped?

It seems to have – in my area, at least.

I keep track of the local real estate ebb and flow because it is a barometer of the other things, such as the changing demographics of my area, which (when I moved here back in 2003) was very rural and very affordable for exactly that reason. One could buy a house on several acres of land for less than $200k. Ordinary people, in other words, could afford to live in a single-family home on a few acres of land.

That changed – suddenly – during the (cough) “pandemic,” probably for several reasons – the most obvious reason being the mass exodus from the (blue) cities to (red) and rural areas, where (ironically) the “blues” sought refuge from the Hell they had created in their former areas. This exodus was facilitated by work-from-home arrangements that the “pandemic” enabled that specifically favored people whose work consisted of paperwork (done online) as opposed to going places and doing/making things.

These people were being paid the same (high) salaries that they had been getting when they lived in the blue (expensive) urban and suburban areas but – thanks to the “pandemic” – they were now able to work (and live) where the cost of living was half as high. This – along with record low interest rates – created a boom in demand for existing houses and land that drove up the prices to surreal (for this area) heights.

As an example:

There is a house not far down the road from where I live that sold for around $100k when it was built about the same time I moved here. It is actually a manufactured home – but it sits on an acre of land which – back in Northern Virginia, where I lived when this home was manufactured – would have cost around $100k just for the land. So it was a deal – for someone who wanted a home with some land.

That same house sold for $200k two years ago. It was just listed – a few weeks ago – for just shy of $220k. This week, the price has been reduced to just under $200k.

It hasn’t sold yet.

Probably because even at a relatively modest $200k, at 7.3 percent interest, a loan for this home would cost its putative owner around $1,500 per month, assuming the putative owner can swing a $20,000 cash (10 percent) down payment. How many people contemplating the purchase of a manufactured home have $20,000 in cash for a down payment?

A Northern Virginia government worker might have that. But he’d probably have to sell his house in Northern Virginia first. And a typical house in Northern Virginia sells for a great deal more than the $400k asking price of the average house. My old house in Northern Virginia is a $600k house now. When I bought it back in the ’90s, it was a $150k house.

And that’s why I was able to buy it.

It was – it is – a small house on a small lot in a not-so-great-neighborhood house. Yet it is now a more-than-half-a-million-dollar house. Such a house – today, at 7.3-something percent interest – would cost you just shy of $4k per month to buy. Assuming you could come up with 20 percent down in cash – which would amount to $120,000.

Even well-paid government workers – who are in the fine position of having the power to make us pay for their work – will probably have trouble swinging that. Maybe they can manage 10 percent down. That would only amount to $60,000 in cash needed to close. But then, they putative buyer would need to be able to swing a monthly mortgage payment of close to $4,500.

Not many can. So houses like my old one in Northern Va aren’t selling, either. Which means people wanting to live here are stuck there. Which is probably why the $200k manufactured home down the road from me may not sell – until the price gets reduced, again. Maybe all the way back to somewhere closer to what it’s actually worth, which is around $120k.

And then ordinary people may be able to afford a home with some land, again.

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