Housing market rebound could actually hurt some who wait for it

After our last child goes off to college in two years, my wife and I will be ready to move south. Our next home will be smaller than the home in which we raised our kids -- probably 25% smaller, and probably 10% to 20% lower in price than what we will get for our primary home. Based on comparables in our area of Connecticut, our current house has probably lost 20% or more of its market value in the last two years. We own golf course property in the south already, and we are pretty well set on where we will live.
I talk with people all the time who ask me if I think prices will fall

If prices continue to drop north and south at the same rate, many will lose buying power on their next home.

further in the south. Well, yes, I do, at least for the next year. But the key point is that I also think prices in the north will continue to fall as well.
If prices were to fall north and south at roughly the same rate, then waiting will be a fool's paradise for many baby boomers moving into their retirement years, especially those who plan to downsize their living space. Simple math argues to sell and move now if you have equity in your home or cash in the bank.
Let's say, for example, that your house is worth $600,000, and you have

Prices in the Naples, FL, area have dropped about 45%, and some are getting back into the market.

your eye on a home in the Carolinas whose market value is currently $500,000. If prices continue to drop in both markets by, say, 10%, your current home will drop $50,000 and your dream home $40,000 in just the next year, costing you $10,000 in buying power. That may not seem like much, but if your current home depreciates faster than the one you want to buy, then the spread will widen even more. In a year or two, you might not be able to afford as much house as you can today.
A strong case can be made by sheer demographics that the south will rise again faster than the north will, making that spread even wider. Already there is evidence in places like Naples, FL, that a 45% price drop is about the end of the carnage, and people are starting to actually get back into the market there. The millions of baby boomers in the north are not going to defer their dreams of a warm retirement for much longer.
Everyone's circumstances are different, and if you don't have equity in your current home or enough money in the bank, then the above example does not apply. But for those fortunate to have resources, and who are waiting for some alchemical miracle of the markets, be careful what you wish for. A market rebound could negatively affect your dreams.

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Friday, 23 January 2009 04:22

Last Updated on Friday, 23 January 2009 04:25

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