New-home sales plunged… blah blah blah… largest amount since 1990… blah blah blah

I am sure everyone in the industry (or who follows the industry) has heard the same thing.  I actualy meant to publish this blog in late January when the PI posted the article… but better late than never.  I know lots of my clients, investors and friends have been asking me this same question for a while now.  So what do I say to them? OR… What do I say to all of those real estate bubble watchers!

The reality is that two thirds of the households in the U.S. lived in their own home in 2000. In 2000 the median value of these homes was $119,600. This is 18% more than the median value in 1990, and more than double the median value in 1950 of $44,600 (in 2000 dollars).  With a quick look back at 2006 and you see the national average was $224,900.  That is an 88% return in those 6 years or a 15% annual average.

So houses dropping by more than 8% last year is not that bad in the slightly bigger picture.  It still is not an easy pill to swallow considering prices are down 17.3% from 2005.  Which seems crazy, but considering the stats in 2005 was averaging a 24% increase a year and an average price in 2005 of $264,932.

This is a conversation for a different day, but if you want to take in to account that most of these homes on average were purchased with a down payment of 20% or less.  Let’s assume your mortgage was equal to your payment (just to keep it simple).  That means on average in 2000 a home owner’s (roughly) $40,000 down payment would have returned that original down payment + another $64,932 in 2005 a 162% return!  Not as good, but still a steller return using 2006 numbers, still a 50% return.

That is what I say