House prices - the news ignores condition

The media likes to say that houses are at 2005 prices or 1998 prices (or whichever year applies to your locale).  That is not exactly true.  They're taking average selling prices, comparing them against previous average selling prices, and making claims.  What they're neglecting to mention, though, is that home conditions are at their lowest level in history.  A whole generation of homebuyers who knew nothing about homeownership are now short-selling the results of 5-7 years' deferred maintenance. 

Relocation has driven me into the housing market.  What I am finding are three tiers of sales and, essentially, two markets.  Sales are, generally, one of the following: purchased during the bubble, priced at last purchase price + realtor commission/remodeling/profit; Terrible condition, priced low as short sale or REO; or Average to good condition, presented reasonably well, priced at early bubble prices (and sold within days).

There are basically two markets: distressed inventory, and decent-condition inventory.  The distressed inventory in the Pacific Northwest is especially distressed - lack of maintenance in a rainy climate leads to rapid decay.  A great number of houses here have mold and dry rot.  I am seeing homes with compromised foundations - possibly caused by something as simple as not cleaning gutters, causing water to pool close to the foundation, undermining the soil stability under the foundation.  Decent condition inventory, on the other hand, sells quickly, even generating bidding wars if priced competitively and presented well.  Flippers are active in the local area.  They are taking risks, as we're seeing some flipped homes languish on the market, but with the serious defects repaired (or masked), flippers are enjoying some success.  I have no idea what their repair costs are, but we're seeing a general trend of flippers flipping properties for $100k above prior selling price.

There is a serious lack of good-condition inventory in the areas closest to employment growth here.  The long, slow slog and relative gamble to close a short sale puts most decent-condition short sales in the distressed inventory camp.  But price concessions on short sales are pretty wimpy, as distant banks seem to look at average sale prices (rather than condition) to judge the fairness of a short sale offer. 

So, affordability hasn't really returned, it has just converted into an ala carte menu.  You can have a house.  Perhaps you'd like a waterproof roof with that?  Maybe you like your windows not to leak?  Perhaps you like appliances with your home?  We have a special today on homes with 40 year old HVAC.  Maybe you'd like something without a leaking oil tank in the yard?  You can have all that, and more, for a price.  It may be time to buy some Home Depot stock.