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03 June, 2008

The housing market is coming back... really... any minute now... I swear.

Location: somewhere on 18th Avenue between fir and spruce
Mood: impoverished

The market really is coming back. Haven't you noticed how prices are starting to go back up again now that spring is here? And that people are starting to get multiple over-price offers on their homes, with escalation clauses? It will be just like back in 2000 in no time. As in, maybe by 3000. Of course, by 3000, inflation will have become so severe, that years will be worth less, and 3000 will only be worth 2000, and we'll be right back where we started again.

When my place first went on the market back in July of 2007, I don't think the construction was even complete yet. And I think the introductory price he had listed was something completely insane like $510,000 for the 1500 square foot units (mine and the adjacent one) and $549,000 for the 1800 square foot units (the two behind). And of course, none sold in advance. When they were completed in the autumn, the prices immediately dropped, and still none sold. And then they dropped again in January so that they were listed at $454,000 for the small ones, and $479,000 for the big ones.

When I made my offer in February, I offered low - something like $420,000 and they countered, and we got it for $432,000. This seemed like a good deal. Like $80,000 below original asking, and a good $20,000 off the current asking price.

Well... 2 short months later, he still has 2 of them left. One big, one small. The other big one sold before mine, and went for $480,000 (I think that's why he dropped the asking price on the other big one to $479,000). So around the beginning of May, he dropped the prices again. To $439,000 for the small one (obviously based somewhat on the price mine went for) and $454,000 for the big one.

And shortly after he did that, the other back one sold. The 1800 square foot one.

Price, you ask?

$435,000 with all closing costs paid by the builder (probably in the ballpark of $5,000-8,000).

So in 2 months, the market dropped so much, that the back units are now selling for less than I paid for the front one! In effect, this implies that the market value of my unit (if you assume proportional value change) has dropped about $16,000 in 2 months.

Nice.

Or, alternatively, I overpaid.

I would be really curious as to how much the builder needed to sell these for in order to break even on the project. My guess is that he probably had to pay at least $400,000 for the house that they destroyed to build them, since it was a decent sized lot and it occurred when the market was doing better than it is now. And then if you figure that my insurance calls the rebuild cost $220,000 each, but they probably estimated low, because he put in top end materials and finishing, so make it $275,000 each. That's $1,100,000 building cost plus $400,000 for the land. which is $1,500,000 total that he probably owed on the project. And there was undoubtedly interest being accrued on that. But if we ignore that for a moment, since I am sure his plan is to always pay off the loans quickly, that would be $375,000 break-even point. So, at this point, assuming he sells them for what I think he'll sell them for, he comes out of this project with $60,000 + $60,000 + $40,000 + $100,000 = $260,000 return. Even if half of that went to interest on the loan (who knows how those things work), it's still a pretty good project for him since he has multiple going on at any one time.

I am in the wrong business.

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