soco condo values

[mwv]

I hate to say it, but condos are only just beginning what will be a brutal descent over the next 2 years.

Austin is behind the national curve but is finally catching up. Condos are a horrible idea to buy new. They're only built during real estate booms and then the fall 50% during busts. That's the time to buy.

[CATXTransplant]

Moderator cut: too much detail My client paid $199,000 last year. We've had it listed for 4 months for $180, then $170, then $160. It's a short sale now. Despite HEAVY marketing including me passing out flyers every First Thursday, etc... we've had 2 showings in the whole 4 months.

[centralaustinite]

Yes, people who bought recently and who have to sell can be in a tight spot!

That's why the OP should not beat himself up. He did many things right, including putting 20% down and taking a fixed rate mortgage. He doesn't have to worry about his payment changing, and even though his property has lost value, he probably is not underwater on his mortgage (or not by much). He can use the comps to lower his property tax assessment, and he has a nice place to live that works for him and he has plans to stay for 8 years.

Very few people are buying now unless they have too. There are fabulous houses for rent at very low rates compared to the wishful value of the house. And the employment picture grows more doubtful everyday.

[austin-steve]

Well, there are several different ways to look at the financial impact of your purchase in 2007. From a strick "rent vs. buy" standpoint, if you could go back in time and do it over again, you would have rented and invested your $47,800 downpayment (plus closing costs) into a financial instrument. Let's call it $50K.

If you invested in a index mutual fund, let's say Vanguard 500, which mirrors the S&P 500, your $50K would have lost $20K in value and now be worth $30K. In order to get back to the $50K starting point, your investment will have to grow by 70%. That's probably not going to happen in the next 5 to 10 years.

Instead, your $239K condo has apparently decreased in value by about 17%, or $40K. So, you're down twice as much (from a gross net worth standpoint) as if you had rented and invested instead. In order to get back to scratch on your condo value, it needs to increase in value by about 20%.

Given that we will have a housing shortage in Austin again by 2011 or 2012 due to the over-correction pullback by builders and buyers, I like the odds of your condo recovering its value better than I do the odds of the S&P 500 increasing by 70% over the same time frame.

Then you have the other benefits of owning vs. renting. You have your place and won't incur any moving expenses over this time period. You have the tax advantages of home ownership (if you itemize more than the standard deduction). Though it may not seem like it now, you have in fact bought in a future growth corridor and when the market does come back, developers will not likely be able to bring to market condos at a lower value than yours, so your value will rise to at least replacement value, perhaps more because smart buyers will favor an established, built out development over a new one, for the same reasons you are experiencing at present.

Since you have an 8 year time horizon, I think you're fine. The naysayers will debate me on this maybe, but I really don't think you should be feeling any despair. We are in a dip that simply won't last. The real winner may be the buyer who has the foresight to pick up the $199K unit now, even knowing it may still drop further before turning back up.

Bottom line is, had you decided to invest your money and rent, and let's say you "knew" the real estate market would soften, your smaller $30K downpayment would today only allow you to afford 20% down on a $150K property.

Yes, had you also known the stock market would tank, maybe you would have put your money in CDs. Woulda, coulda, shoulda. None of us can fully predict all of this stuff, so we make our decisions and we live life.

Give yourself a break. I think you'll come out fine in 5 to 10 years.

Steve

[twange]

Quality post, thank you for the excellent breakdown.