Trading Down Is the New Real Estate Reality
Half a million dollars is, by almost any standard, a lot of money. But during the past few years, when credit was easy and regulations were loose, to many Americans it didn’t seem like all that much.
That’s because they were able to borrow huge amounts of money to buy new homes, often with little or nothing down. And while most homes sold in the U.S., even at the height of the housing bubble, were $500,000 or less, rising prices in most major cities and affluent suburbs around the country pushed the cost of a three-bedroom home well into seven figures or more.
In fact, in most parts of the country $500,000 has always bought plenty of house. But the gap between $500,000 and $1 million is more than monetary. It is also psychological. And during the recent boom years Americans became reckless consumers, buying cars, houses, clothes and much more that they couldn’t really afford. The dream of a $1 million home, once so distant, became tantalizingly reachable.
Now that’s all changed. While certain pockets, such as Manhattan, San Francisco, and Boston, remain high compared with the rest of the U.S., real estate prices around the country have fallen dramatically. The downside to this, of course, is that many people now owe more money on their homes than their homes are worth. The upside is that valuations are much more realistic—and affordable.