By John Paul Valdez
In 2014, we have only gained back about 70 percent of those all-time high 2008-9 values, which were likely overvalued. That’s a dangerous game when the American Dream is home ownership.
When they say that the “median” price of a home in Palm Springs right now is 240K they simply mean that the number has an equal number of homes selling above and below that median number. It is NOT an average price paid. If we stated an average, we’d probably be including some 12 million dollar estates and some 30K houses sold on the auction block that don’t represent any part of the normal market for a typical purchase, hence the “median” is a good number to look at.
We can also look at prices per sq foot. A home costs somewhere between 100 and 150 dollars per square foot to build. Homes in PS are approaching 150 per square foot or better, and homes in Desert Hot Springs are approaching 100 per square foot.
Certain local markets can support 300 dollars a sq ft sales prices if the finishes are spectacular or we are talking about custom homes. These are neither typical nor average.
At these numbers, there is not a great incentive for builders to come in and create growth in our cities because they need to make a profit. If they spend 100-150 per sq ft to build they need to sell for more than that. They can no longer count on selling for 300 dollars per sq foot so easily.
A rather large community is promised in La Quinta that could bring in 2000 new homes, and it will take years to bring into existence, but they will surely plan on selling at numbers above 150 dollars per sq ft.
Interest rates also affect building. Current rates are near historical lows, but even rates as high as 5% can be motivational for families and builders alike as resulting payments on a 30 year mortgage are reasonable.
There are two issues that are stopping faster growth in home ownership from happening more easily. One is lower wages, and the other is stricter lending practices. We don’t want banks to loan with a signature only, but when a single and only residence is contemplated, making that loan near impossible to get doesn’t help builders build nor buyers buy. Redevelopment funds from the government are gone too.
Home ownership has fallen from 69 percent of the population to 65 percent in these past few years. For every percent drop, that’s a million new homes that don’t get built across the nation.
Our entire economy is built on the concept of home ownership, landownership, or ownership of corporations through stock. In America, only owners have any chance of growth financially in the long term. Our middle class is shrinking in recognizable numbers, and that is a sad indictment of how we have handled a “recovery” that is still too slow to catch us up to where we were.
The banks were made whole, but not the homeowners. Thank goodness we have a 10 dollar minimum wage going into effect over these next two years. Cheers to 2014! Things will be better.