I know we always say around here that economic weakness and collapse starts on the outside (the most fragile or overextended places) first, and works its way to the center (the strongest places economically). So Greece, Turkey, and Argentina first, then moving toward the US, western Europe and China. But I’m seeing that the housing bubbles worldwide are now starting to pop in the most ridiculously overpriced places first (NYC luxury markets, Seattle and San Francisco, Hong Kong and London, Australia), and these are universally viewed as economically strong. From what I can see, the prices in places where the “Average Person” lives in an “Average Economy” are not exhibiting declines like these most overpriced markets are (yet). In fact some are currently stable or still rising (more on that below). I explain that to myself by concluding that the most ridiculously overpriced markets are therefore the most fragile and vulnerable, and respond first to the slightest perturbations of their economies and housing markets. The “Average Markets” are not as overextended and therefore not as instantly sensitive to the slightest problems. Additionally, it seems that these most ridiculously overpriced markets are where buyers with the privileged first access to money printed-out-of-thin-air buy (either because they live there or because they invest there). And since the world’s central banks are beginning to reverse their money printing operations and soak up some of the oceans of liquidity, then that dynamic is bound to effect first those who have been receiving it and profiting from it all along (and therefore the real estate markets they’ve been playing in are affected).
This whole housing market bubble has my complete attention as we are currently building a home to retire to in New Hampshire while we finish out the last 6 months of our (traditional) careers here in Philadelphia. Part of our strategy has been to retire from a city with a high cost of living to a town far away with a lower cost of living, and that looks like it’s going to work well (as long as local housing prices hold up for another 6 weeks!!). However, this whole popping housing bubble getting started has caused us to move up the date we list our house for sale from March 2019 to the beginning of January 2019.
We bought our house here in 1988 when the local economy sucked and we were located on the literal line dividing a low income, high crime “ghetto” area from a middle and upper-middle class area. (If you haven’t lived in a major US city you would probably be shocked how fast neighborhoods can change from ghetto to middle class to prosperous. Two to three hundred FEET can make a world of difference in such high density places.) Anyway, we were pioneers and risk takers at a time when no one could predict which way our neighborhood would go: up or down. Fortunately for us, our neighborhood became more prosperous as other risk takers came along and reinforced our position. The beginnings of the ghetto have now moved 1/4 mile north of us and the “gentrification” is continuing in that direction as houses are being renovated at a rapid clip, or torn down and new homes constructed. We are now comfortably inside the upper-middle class neighborhood.
Our neighborhood did not see as much price appreciation as the rest of the country in the 2004-07 housing bubble, and when when the bubble burst it didn’t see as much decline either. This time, however, our prices have gotten crazy high and are still climbing. If everyone would just be quiet about the ridiculous prices and the inevitable collapse, we’d be happy because we just want to get ours and slip away before the ship goes down!! Our neighborhood is one of the two hottest in the city and prices are holding steady and climbing a little in spite of the rest of the world or ultimate reality. And our neighborhood does have a lot to recommend it if you are required to live in the city or have chosen to do so. Public transit is good (though one of the most expensive in the country). People can also walk or bike to most cultural attractions and to most jobs in the center of the city and its adjacent neighborhoods.
To give you an idea what’s happening here, consider this. In 1988 we paid $64,500 for our 1,100 square foot, two story, brick rowhouse (built in 1881). It needed A LOT of work, and we did most of that ourselves while raising a 7 year old and and a 3 year old. Since '88 we’ve probably spent $150,000 on renovation and maintenance. Back in June, two of our neighbors with houses 95% identical to ours and less than 200 feet away sold their houses in 11 days for $420,000 and $409,000. Prices have been slightly rising until this month. Three houses in our neighborhood 95% the same as ours are currently listed for $459,000 to $479,000. I find that astounding, and I’m pretty sure it’s not just because I’m old and don’t know what things cost “these days.” Selling in January isn’t as big a problem in Philly as it is in many other places that are more seasonal, so we expect to list our house for at least $449,000 even if prices contract every week between now and then. Of course we’ll have to pay the 6% sales commission and the 2% city real estate transaction tax (the buyer has to pay 2% too – the joys of city life!). We’ve been going to the “open houses” for these properties competitive with ours and we’re finding that most of the prospective buyers are DINKs (double income, no kids). That’s not surprising. Who else could afford to buy here?
Our new home in Concord, NH is 1,480 sq. ft and sits on 0.63 acre and we’re into it for about $330,000. So it looks like we’re going to be able to pay off our construction loan and other expenses with the proceeds of our Philly house sale, and still have some change left over! Making sure we can at least cover our expenses for building was our primary goal. We’ve been debt free since 2007 and that’s the way we want it to stay. It would be a disaster for us if we still owed money for the house in Concord after we received the proceeds from the Philly house. I’m starting to relax about that now since only a sudden cataclism like WWIII could cause the price of our house to drop from $460,000 today to $360,000 (our break even sales price) in the next 5-6 weeks. Even in the bursting of the last housing bubble, prices didn’t come down that much that fast (at least not here).
Of course, to pull this all off we’ve had to endure everything urban living in Philadelphia could throw at us for 30 years. That has been exhausting and we’re looking forward to some peace and quiet.
“Welcome to the Hunger Games. And may the odds be ever in your favor.”
