Real Value Vs. Sticker Price

I was having a discussion with a client the other day and he made this comment to me: "Prices are so low right now why am I buying and flipping houses?  I should be buying and holding everything I can get my hands on."

Intuitively, I agreed.  (And not just because I want to sell this guy a hundred homes.)

House prices are down about 10%-15% from market peaks in 2007.  Distressed sale homes are priced  yet another 20%-50% below today's retail (fixed up and ready for end-user) prices.  The last time we saw such deep discounts in abundance in Weber County was the state wide recession of 2002-2004.

So, lets study a couple homes to determine whether they are a better value today or the last time we had a price trough.

This home located at 487 Doxey sold this year for $25,000 cash.  It is a 2 bed 1 bath home.  In May of 2007, the market peak, it sold for $62,000.  This same home sold for $32,000 in March of 2002, our previous market trough. 

The home is cheaper today than it was in 2002 but due to inflation over that time the difference is even grater.  $25,000 today is the same as $20,000 in 2002.  So, in REAL TERMS, the lucky buyer of this home purchased it at a 37.5% discount below the previous bottom-of-the-barrel 2002 trough price!  What a steal!

Lets take a look at another example, 2815 Nordic Valley Way in Ogden Valley.  This home was sold in June 2003 for $187,500.  In December 2009 the home sold for $118,000 cash.  That amount today was the same as $99,000 in 2003.  So, in REAL TERMS, the lucky buyer of this home purchased it at 47.2% discount below its low 2003 price! 

Over the past 7 years not only have distressed home prices declined, but the value of the dollar has done so as well.  This makes real estate an extreme bargain.

If you want to see the charts, see Oil Press: Living Through the Big Squeeze.  The bottom line: NOW IS THE TIME TO BUY REAL ESTATE.