Capital Gains

Since moving to the Santa Cruz/ San Jose area of CA we have been looking for a starter home to buy. Our thinking was that this area took a beating in the collapse of the real estate bubble; therefore, there would be many houses available at approximately reasonable prices.

In part this is true. There are many houses available at the bottom of the market that would have been priced 20-30% more two years ago. However, they tend to fall into two categories: houses that are genuinely good deals, and houses that are crumbling and filthy. In the former case, investors buy these houses on terms I cannot compete with--of the four(ish) houses we have been seriously interested in, our efforts were stymied by people buying with cash. In the latter category, the houses need a general contractor to take them on, invest in them, and make a profit reselling for them to move. I don't begrudge the GC's for profitting in this way, but it means that the current low price tag is illusory.

This is only anecdotal evidence but it is exactly the cycle one would predict in capitalism's ability to re-entrench itself through periodic failures. People buying 200-300k houses with cash in the first week on the market are not small families, they are speculators. Moreover, while these bank-owned properties are listed in the 200-300 range, they usually sell for 50-100k more. The market is adjusting itself as liberal economics would predict. The end result is that prices will eventually return to (around) their cyclical median, except that more material capital will be in the hands of those persons who are already the wealthiest and more of the least wealthy will be reduced to selling their wage labor for diminishing returns.

I can't complain: my position is better than many, many other.