The Cure for High Prices...High Prices!

“In nearly 25 years of building homes, I have not asked a homeowner to pay more for a house when the value increased,” Anderson Homes owner Larry Anderson wrote in a letter to homeowners who recently asked for a rebate because of falling home values in Manteca, CA (population 49,258). Anderson recently auctioned off 34 finished homes in the Paseo West subdivision in Manteca.

Homeowner Dave Cantrell who led a homeowner revolt against Anderson differed in his sentiments, “I lost a quarter million dollars in value. I’m screwed.” He had paid $670,000 for a 2,700 sf home a year ago. An identical one five doors down the street sold last month for $391,000 at the auction.

Virtually all of the buyers at the auction were renters who felt they could finally afford to take the plunge into home ownership. Many are moving out to Manteca from the Bay Area, even though it will be a 90 minute commute for them to Silicon Valley. But, they are realistically looking at this being their only opportunity to buy at what they consider a reasonable value.

A study of housing values in Yuba County, CA (population 70,396) showed the median value of a home in 1997 at $83,000. That value would double to $163,000 by 2003 and double again in the next two years to $341,000. But, from 2005 to 2007 the value fell by $64,000 to $277,000, not what I would consider a bargain basement price but definitely more affordable than at its peak.

The current crisis in some parts of the country in housing values plunging will pass with time. It always does. When prices get too high, the market corrects itself for the cure for high prices, is those high prices.