‘What Are Buyers ‘On-The-Fence’ Thinking Right Now?’
Several readers want to know what potential buyers think about the market today. “I’d like to see a discussion about what buyers ‘on the fence’ are really thinking right now. What exactly will it take to get them to buy a home?”
“For example, I’ve noticed that several people who post here are eager to buy a home but believe that prices are too high to justify a real estate purchase right now. Presumably, they would purchase a house if prices dropped sufficiently.”
“Just a few months ago I would have counted myself among that group. Falling prices would have been enough to change me from a Looker into a Buyer. Today, that’s no longer true. I’ve simply learned too much about the lax lending standards and shady dealings that drove the current run-up in housing prices. I would need to see both a return to normal prices as well as a more conservative lending environment in order to feel comfortable purchasing a home. Does anyone else feel the same way?”
A reply, “I think you are on target. I own (since 1973), but I have children that would like to buy houses and I advise agin it. I am paricularly stunned by DTI ratios needed to purchase at current prices. For many reasons, I expect housing prices to drop by 50% or more over many, many years. This drop can occur by a real drop in price or by inflation allowing wages to justify current pricing levels. Either way it occurs, there is no housing market until house price correction event happens. I have no interest in catching a falling knife.”
A reader from New York City, “In my area, I would start thinking about buying if the prices dropped half the distance they rose between 2001 and today. Obviously if they were tumbling down I would wait, but I think we are going to see a long slow drop.”
Another said, “Here’s the problem. We don’t know if there ARE many fencesitter fish, really. We don’t know true inventory, because all casual fisherman haven’t pulled in their lines and taken their houses off the market yet. In other words, the sediment has to settle.”
“In our case, we’ve decided we really LIKE renting. So we’ve created a value = $212.50 per hour on my husband’s and my time saved by not doing ANY of the HGTV nonsense. This equals approx. $1,000 a month in additional savings we would have to see on a home purchase over renting.”
“Therefore, for us to buy, we would have to be able to purchase the house (same we currently rent) for MUCH less than our rent. this is approximately 1999 pricing. This considers net tax gain, investment loss on our 20% downpayment over 30 years, insurance increase, maintenance, etc.”
“We were active bidders, never won a bid, and ended up in a nice rental instead. So current rental happiness plays a part here.”
And another, “If my house had sold, we’d definitely rent. The biggest message I’ve gotten from this blog is that Cash is King and keeping liquid is strength as we go forward into this thing. I’d also feel I was still buying at the top if I purchased within 1 year of the peak.”
“A quote from the Studs Terkel book ‘Hard Times’ about people’s memories of The Depression gave me the chills the other night. During a panic your home suddenly becomes worthless because nobody wants it.”
The poster that made the initial topic also had this:
‘You make some very good points, Pat. I currently live in an apartment. In chatting with my neighbors, I’ve learned that many are new to the area. They tell me that they would like to purchase a house but cannot afford to do so at current prices. For that reason, I tend to think in terms of lots of buyers sitting on the sidelines. I forget that per the latest statistics, almost everyone who wants to and can buy has already done so.’
IMO, one needs to see how the economy is going to shake out. Depending on personal finances of course, if a person needs a job for support, mobility may end up being of high value for a couple of years.
Agreed, Ben. The economy is very unsettled right now. Any major decision regarding money should be weighed extra carefully.
Good point. I had not even thought about risk aversion as yet another stake in the bubble’s heart. Last year everyone was rushing to buy, or else they would get priced out forever. Now with the prospect of flat or falling prices, and the disconnect between RE permabull’s optimism last year turned into the gloomiest outlook in over a decade almost overnight, prospective buyers would be wise to procede with extreme caution, especially if they can comfortably rent in the area where they live.
The article “The Elephant in the Barrel” from the WSJ makes an excellent point along this lines. Just substitute RE for oil in this excerpt :
`People say oil supply-lines are “tight,” but that’s what happens with all goods in an inflationary environment. Buyers buy before prices further rise. Monetary velocity — the turnover of currency — takes off. It looks like there are “shortages,” but in fact there is only a shortage at the old price. The opposite happens with a strong, or deflationary, dollar. As currency becomes more valuable, buyers hold on to the money, waiting for cheaper prices later. Velocity plummets. The apparent result is “gluts” of goods. Markets and supply-lines appear “loose.” `
Paying off any debt is important (unless the APR is less than 4%). With the rest of the savings, carefully think about wealth retention. And do not put it all in one place or form so you can’t be wiped out in one shot.
Seems like sound advice. I’m all ears for any other wealth retention suggestions you might have. Not that I would run out and do them, but I’d weigh them as possibilities.
We have all our debt at a fixed 1.9% and 3.9% til paid off. And one at 0% until Nov. ‘07. I’m still going to try to get it all paid off!! This upcoming recession really scares the crap out of me and I want to be liquid!!!! Thankfully we do not own any real estate! I am just scared of tax time and was told the only thing we could do is max out both of our 401ks. Is this true? I imagine a lot of people on this board have tax issues and since our tax system is so screwed up (only benefiting homeowners) I am scared we will really get screwed. Any advice would be greatly appreciated!!! Thanks!
Start a small side business. Get a smart CPA. Plan your taxes at least 3 years out. Get and stay out of debt. See if an MSA makes sense for you. Make a household budget and see where your money is going.
You say we, so I assume that you are married. If so, and you both work, one of you could have a job with good health insurance covering both of you, and the other could work for your side business if possible. Create a SEP-IRA for the side business and max it out. If you have taxable bonds in your portfolio, do the math to see if you would be better off in tax-free bonds. Save up enough cash to buy income property in about 2012 or whenever the market bottoms and starts to rise again.
I forgot Rule #0: Live below your means.
Observing this rule yields at least major two advantages:
1. You will accumulate capital. Capital gives you choices.
2. You will seldom get audited, and you will always win if you do get audited (assuming that you are basically honest).
Thanks for the advice!!
Also, sorry but what is an MSA?
Maxing out your 401K won’t do you any good if the funds aren’t invested defensively.
… and who made you an expert TJ?
I believe the environment is shaping up so that more aggressive investments will outperform over the next couple years.
My advice for the average Joe investor is to diversify … keep some conservative investments, but take some more agressive stances too.
And by the way … don’t go too agressive on energy related stocks (and for that matter precious metals too) … the “bull market” in those vehicles is getting old and showing signs of wear.
I don’t claim to be an expert, but if you’re on this board predicting the stock market’s got anywhere to go but down in the face of a nationwide housing bust, you’re a troll. Go ahead, diversify your losses, just don’t expect others here to join you.
> if you’re on this board predicting the stock market’s got anywhere to go but down in the face of a nationwide housing bust, you’re a troll
I think some stocks might do well in the coming years. Stocks that don’t depend much on domestic consumption but more on foreign markets might make good use of a lower dollar and fixed or decreasing wages in the US, like aerospace, software, movies, etc. Don’t forget that there are plenty of dollars in foreign countries that could buy companies to support their own brands. Levonov(?) bought IBM’s PC business, maybe they are interested in the rest of it, too. Maybe GM becomes a bargain for Toyota at some time, and they buy it, fire the overpaid American management and become themselves a more international company. It’s sell-out time for America. I don’t recommend specific stocks though.
i live in a 1br apartment in Queens. I can probably sell it for $220,000 if I wanted to and a lot of newly married couples can easily afford the payments. The biggest hurdle is the downpayment. Co-op boards require a downpayment and liquid assets in the bank in case you lose your job. And they check your financials. This means that anyone buying my place needs to have $40,000 - $50,000 in cash ready for a downpayment plus money sitting in the bank.
Those $1 million apartments you hear about. Most likely at least 30% down plus 18 months assets to buy into that building.
That’s why a lot of the new buildings are condos and not coops—much less strict financial requirements; board approvals not necessary (though apparently some check that you can pay your maintenance fees).
If you have a coop board requiring financial anal probes, your property is probably worth less than you think it is. Not just because you have less potential buyers to choose from, but your buyers will suffer from the same illiquidity when they want out.
Coops make sense if the building is trying to preserve a certain “elegance” among owners, and if the owners are willing to pay the price for the exclusivity. But what is the price, and what do you get for the price? If the building is anyplace near Queens, I would say WTF? but that’s just me, who wouldn’t live anywhere near NYC for less than $1 million/year cold cash. Someone else might be happy to pay the premium. But the illiquid market makes the valuation suspect.
75% of the NYC RE market is co-ops
fact of life around here. even with all the new condos being built, they aren’t making a major dent in the ratio. If you look at the census numbers NYC is gaining people so this is just new inventory to fill demand.
You mean Manhattan, not NYC as a whole:
http://furmancenter.nyu.edu/CREUP_Papers/state_of_the_city/chapter01.pdf
most of the housing units in NYC, as you can see from this data, are single - multifamily rental units. Also latest population stats indicate NYC is losing population. But please cite your data if you have different numbers.
I know there are a lot of buyers (especially those like us in their 20s and 30s) who are just biding their time.
Our best friends decided to move in with the in-laws to save additional downpayment money. We all want to buy places, and probably could with the crazy financing, but we’d like to keep them as well.
We’re waiting until we can buy a SFH or a nice townhome that we can stay in for a while. Right now, the place I’d like would be 3400 per month after our 15% downpayment plus 1.7 property tax and about 300 in HOA. We pay 1700 for rent.
It may be a long wait.
Ditto.
I’m 27 and I’m waiting on the market to buy a home. And am particularly excited because I might be able to buy a place in SoCal, having recently moved out to Austin, TX (one of the major factors in the move, housing costs). Though purchasing a house will still take a 2 engineer houshold’s income to make ends meet in SoCal, rather than the 1 that it takes in TX.
IMO, one needs to see how the economy is going to shake out.
Exactly! Who’s going to feel like buying during a depression?
I will.
“During a panic your home suddenly becomes worthless because nobody wants it.”
Maybe the mantra should change from “They’re not making anymore land, you know” to “They’re not making any more buyers, you know.”
That may be almost true in a slum like Compton. East LA or Watts. Otherwise, it’s nonsense. It’s entirely possible that homes, many homes, will be worth far less than the underlying mortgage, but not worthless.
We will see a reset, not only of ARMs but also of value, back to fundamentals, over time. Somewhere in between then and now we will overshoot to the downside as the REOs pile up and there’s not enough cash/credit/demand to keep clearing prices above the fundamentals line. Think RTC, squared.
I thought Watts and Compton were “up and coming” areas???? WTF????
I’ve been watching this market go crazy for the past 2 years. If the prices were to drop 25k each year in OC, CA - then this would cover our rent of $1700 a month. We’re renting a 2b/2b/detached garage/washer/dryer. Why rent when our would-be-down-payment in the bank is making a tidy sum each month and the difference in rent to own each month is also money we can sock away. Sure we could have stretched to get into a mortgage last summer and “own” our own place. But finacially, were making out like gang busters, now. Until we actually need to buy (the numbers make more sense to buy and we need a bigger place) then I’m going to rent. Plus who could afford to buy at this point.
“Plus who could afford to buy at this point. ” Those GFs and FB’s willing to accept or ignorant of the risks associated with I/O’s Neg Ams and ARMs. That’s who. However, that pool has shrunk because the prinicipals (prices) have gotten so high, combined with the rise in rates, that even those kinds of loans are becoming unaffordable.
What’s a FB? I’ve been trying to figure this out for some time now. I did a search in google. The only thing I thought might fit is: “Fart Burner”?
This has been bugging me for some time now.
The thinking for those of us who will buy but not now is all about the numbers, just like last time. In the last cycle we purchased our primary residence in Jul of ‘95. Absolute bottom, from the bank, and got 10% off AFTER entering escrow. In this cycle we sold our last rental April ‘06 at the areas local maximum. Supply has nearly tripled since then. It was massively cash positive but we got 273 times rent. That’s about the same as CDs so we bailed. I fully expect to buy 3 more just like it in the same village when prices are around 120 times rent. That’s a really deep cut, I know but these things always overcorrect.
So, the thinking is when the numbers pencil out for an investment. If we were interested in another personal use home the math would be different. Quality, quality, quality in the right location, location, location. Very few properties would even make our list. Quality is not granite countertops BTW. Quality is square and true construction, footprint comensurate with the lot size, passive energy in design and materials, adequate zoning protection, and things of that nature. IOW almost nothing built after 1999.
I’ve sketched out a 20% from peak by Labor Day (Q3 data, same sales comparison) followed by 3-4 years at least of 7% per year (reverse compounded) in an environment of practical inflation of about 6-7% as well. At that rate the math starts to work at the margins by late 2008 early 2009. The only deviation from my plan would be the unexpected deal such as an estate sale with out-of-state relatives or a distress sale near where my kids will be attending college and where the boarding costs cover any price difference from my formula.
Sorry for far more pontificating than anyone should have to endure.
I’m on the same page as you Robert. I wanted to buy my first rental property and started to research pricing metrics. Anyway I looked at it the numbers did not work. That’s what spawned my interest in the RE (credit) bubble. Prices on rental properties would have to drop significantly (25% to 50% in most cases) for me to even consider a purchase. The other side to the math is if rents go up 50%. Either way, at this point in time, better to keep your powder dry.
Rents will rise agressively for a little while longer but eventually fall back in many places. Inflation will eat a lot of equity. Still prices must fall, a lot. I’m not worried about renters turning to owners for a long time. The banks are not going to be lending to them after the loans they’ve got start burning. Me they’ll lend to. The new age will be the old age when the rule was: The banks only lend to people who don’t need the money. They may even give me a discount if I can hit the bullseye on their David Crisp dart board.
That is spot on and is way overlooked. In my neck of the woods it is the rare bird who can show 20% down plus emergency money at current price levels. When the easy money dries up, there will be hell to pay.
I’ve got flamed elsewhere for pointing out a HUGE problem during the last bust that impacted condos - Fannie and Freddie would not buy loans on condo units in buildings where the owner-occupancy rate was less than 60%, if I remember correctly.
“Primary residence? 20% down? Sorry, we can’t help you in that particular building.” Sellers in many instances had to have all-cash buyers to unload, even at depressed prices. What a mess….
“Primary residence.” Ahhhh yes. My secret weapon. I never lied on this but there are soooo many that did. I’ll buy a first mortgage and discover that the terms are for primary residence and the note becomes due on demand. Remember I’m only screwing liars who don’t live in these homes.
same here in the Netherlands. At current homeprices, rental income would be in the 1.5-3% range (that’s without counting all the cost); so it’s a sure way to loose money even if the property would keep its value. There is no way rents can rise except maybe by packing multiple families in one home (very unlikely here). Many of these properties are simply sitting empty on the market now; as long as prices rise at more than a few % each year, why bother with renters at all …
As for the 20% down, that was the basic requirement 15 years ago and now it’s the exception to the rule. I’m sure 90% of current buyers would not even be able to provide a 10% downpayment (except maybe if they get it as a free loan from the government, which is one of the tricks used here to keep prices rising). I’m not going to buy until a 20% downpayment (from one’s own money) is a standard minimum requirement again.
“I’m not going to buy until a 20% downpayment (from one’s own money) is a standard minimum requirement again.”
That’s sort of the same thinking that I had when I originally posted. I simply do not want to purchase a home where I end up being the only person with a vested interest in the neighborhood. Zero down flim-flam loans make that a very real possibility these days.
Also, the issue that Ben raised regarding mobility is spot on. I don’t personally know a lot of flippers. I do know people who have moved/are moving for job purposes, myself included. If the job market weakens further (and I fully expect it to do so) the ability to pick up move for employment will become more and more valuable.
I posted a flip he is trying on my lowly blog. He purchased this house on 3/31/06 for $1,750,000 and listed for $2,600,000. He now has it listed for $2,200,000. WHO THE HELL tries to flip a multi million dollar house in Bakersfield at this point in the bubble cycle. I will update with the conclusion. Hopefully, it wil be at the steps of the County Recorders Office!
Last sucker in the pipe!
goes underwater in a big way (think surfing).
Great post, unfortunately not many people think long term and know how to understand and use simple math. I am beginning to think that modern US society is deeply flawed.
I am renting, no means to buy anything yet (grad student = poverty :-)). I must say, reading this blog has been a great education. My grateful thanks to Ben and all the people posting here.
Excellent post as usual, Robert. People forget that if you cut off the right side of a historical chart, you can find lots of cases that look like today’s “prices couldn’t possibly fall THAT much” scenario on the surface. Put the rest of the chart in, and you see that they could and did. In the mid 90s, the (old) Housing Affordability Index was above 100 for places like San Diego. The SF Bay nearly reached that point as well, before the dotcom boom. We’ll see that again.
Having dealt with liquidating an estate, your point about estate sales is quite accurate. However, the changes to the estate tax schedule are going to greatly reduce the pressure on people to sell quickly. The IRS wants its money in 9 months from date of death, and if you have probate or a rommate to get rid of, by the time you are allowed to sell, the clock is ticking fast. Once the IRS is out of the equation, then you just need to sell to divvy up the value among heirs. Not nearly as much time crunch in that, usually. So, for that reason, this time around will be a little different, with estates not rushing quite so fast to lowball the competition.
I personally think the estate thing will be more than offset by the secondary market bagholders being even more motivated than banks were the last time around, when it comes to selling REO. Since lots of MBS packagers and toxic lenders don’t have actual offices and people to deal with the mountain of inventory, there will be some serious fire sales, and these will probably be the best bets (since you can force them into contingencies and warranties, unlike foreclosure auctions).
Good expansion. I spoke using too much shorthand given the constraints of blog posts. I definitely agree the purchase of REOs or even 1st notes on the secondary market show great promise. Of course atfirst the note/bagholders will be slow tooffer market clearing prices so patience is required, just like last time.
You are clearlyin thee secret club. The club that knows a bank will go to great lengths to convert a nonperforming assset intoa performing loan especially near the end of a quarter.
I thought about keeping the secret, but I would rather see a more fair market than make an outrageous profit. I’m magnanimous like that
Honestly, I think the country is better off with a better allocation of capital and with a productive populous. The world is pretty scary right now (and always has been), and it’s important to get our proverbial house in order as a nation.
I figured you knew everything I posted a priori, but I would like the bloggers at least to know that there are lots of fair deals that can be made without necessarily wishing ill on another. The example of out-of-state executors is a case that looks bad on the face of it, but in reality, everybody helps each other out in that situation. The inherited house is “found money” for the heirs, so a quick sale is beneficial with no realized loss to them. Swoop in with your bag of cash, close the deal, and make the house a contributing part of the housing inventory, either as your shelter or as a rental investment property. Everybody wins. Nobody needs to feel insulted.
Plus my mom is a banker in SoCal, so I remember what happened to the SoCal banking industry. She even worked at a bank that was recovering from a near-death experience. Good people, just should have been more careful about what loans they made. It’s kind of like a time machine now that I am living in the Bay Area, and these people can’t fathom what a down market looks like. I try telling people. That way, I have a clear conscience for when I make my offers.
Hmmm…. Good people who loan ‘money’ that did not exist before it was borrowed and then attach interest.
What is your definition of bad people?
The ones that were forced out of the company were the “bad” people. The “good” people were working hard to make sure innocent people didn’t get burned.
We were told not to buy anything before 2001 since the wood has a tendancy to dry out here and when a quake happens the houses fall apart? True, we are renting a house built in 2001 and the quality sucks! We are somewhat new to the area and do not know what to believe! I agree quality nowadays in these slapped up neighborhoods sucks, but I don’t want it falling down around my ears. Any opinions?? Thanks…
I never heard of that! I live in a house that was built in 1965. We went through the northridge quake and everything BUT the wooden frame had to be replaced. The wood was just fine and so were we.
Sorry for far more pontificating than anyone should have to endure.
No apologies necessary, sensei!
You have got to be kidding. If you had any idea what that word means, you would not be using it.
Robert, what area do you think of when you think of investment property?
Investment property:
1. Unrecognized value.
2. -Potential- for appreciation.
3. Proximity for personal oversight.
4. Stable community.
5. SFR/Townhouse/4plex. A personal preference.
6. Pool of renters.
7. Rational land-use regulation. Some would call this a personal foible but I call it putting my money where my big mouth is and voting with my feet.
8. Nowhere near transit.
9. No HOA.
10. No Mello-Roos.
11. No pending plans for rezoning, a freeway, etc.
12. Defects are okay but no unkowns.
13. There’s about a hundred “second tier” factors as well.
So, with all that in mind an casting out from my location the conclusion is obvious. I cannot find a property in the US that I personally consider a worthy investment property at this time. Spring ‘08and I’ll bee looking at maybe San Luis Obispo, Santa Clarita, Simi Valley, North San Diego, Big Bear.
Places I don’t consider; core urban areas, large metro conurbations, high end (Santa Barbara, Orange County), bad weather communities (Bakersfield, Ontario).
Places I wish would open up; Coastal California, Cape Cod, low density Gulf Florida pennisula, the next Sedona.
Do Ipaint a picture?
You do. And a very well informed one. Thank you. I’m looking at West Simi/Moorpark in 2008. Perhaps I’ll see you there!
I know exactly what I want. I have done my homework and legwork. The place I want came up for sale in August, bad news. But they WAY overpaid, good news. I knew when they bought it they would not be able to make it work. Now they are in trouble, had to get a bond for the unpaid property taxes and they have 3 years to come up with the money. Which they will not be able to do, and then it will be auctioned in 2009. I am trying to triangulate my savings rate, with the 2009 time, and the downfall in price so as to be a cash buyer.
I’ll post my answer in the form of a song, based on Prince’s “1999″:
I was laughin’ when I wrote this
Forgive me if it goes astray
But when I woke up this mornin’
Coulda sworn it was judgment day
The market was all crashin’
There were flippers runnin’ everywhere
Tryin’ to run from the destruction
You know I didn’t even care
‘Cuz they say two thousand zero six - party over
Oops, out of time
So today I’m gonna pay like it’s 1999
I was laughin’ when I wrote this
So sue me if I go too fast
But RE was in a bubble
And bubbles aren’t meant to last
Prices fallin’ all around us
Sellers bargaining for their life
But if I buy a house
I don’t wanna catch a fallin’ knife
Yeah, they say two thousand zero six - party over
Oops, out of time
So today I’m gonna pay like it’s 1999
If you didn’t come to sell
Don’t bother knockin’ on my door
I got cash in my pocket
And baby I’m ready to score
Every realtor owns twelve condos
They’re tryin’ to flog on MLS
They’re the greatest of fools
They’ll go bankrupt before taking less
They say two thousand zero six - party over
Oops, out of time
So today I’m gonna pay like it’s 1999
Yeah today I’m gonna pay like it’s 1999
Nicely done!
I have had 2 first-time buyers cancel their appointments with me in the last week. I have 4 couples approved to buy another house when their current house sells and these homes are not selling (in Los Angeles county coastal.) The feeling seems to be that people now think that prices are dropping and will drop further and want to wait. I do not think that interest rates are much of a factor. Its more the affordability problem. Prices have reached a point where many people just do not want to or cannot stretch their monthly incomes, especially when there is no appreciation.
“Prices have reached a point where many people just do not want to or cannot stretch their monthly incomes, especially when there is no appreciation. ”
Aye, there’s the rub! We finally have all of the boneheads that make their financial decisions on what they can afford monthly in the now sinking boat. Appreciation bailed out these monthly payment morons and that game has ended. The final price is what matters, always has and always will.
“Prices have reached a point where many people just do not want to or cannot stretch their monthly incomes, especially when there is no appreciation.”
So what you’re saying is people only bought because homes appreciated and they could benefit from this appreciation and that if people want to buy a home to actually stay and live in the home they can’t afford it. Wow! You solved the big mystery!
No, people only accepted the risk of buying an overpriced home with exotic financing becuase they could count on appreciation to bail them out before they could no longer afford the payments (interest rate adjustment, reset, etc.).
I fully understand it. My response was direct to Sensible Lender. The only thing exotic about the financing is all the poor standards and money management resembles something from a third world country.
People these last few years bought any crap they could just to get in the game. Very few thought they were buying a home, just a house. Now that people returning to thinking of houses as places to live these stacks o’sticks on a slab are gonna sit.
Robert, that is how my wife and I also feel. We are newly empty nesters that are early retirees who can move anywhere in the country. Our jobs allowed us to live (own property) in NoVa, Outerbanks of NC, West LA, Houston Tx, Littlerock,Ak, Thousand Oaks, Ca, Mammoth Lakes Ca, small town Ia and currently renting in the Phoenix Az area. My in-laws have a waterfront place in northern Fla. We love certain aspects of each of these places. In a falling market we are going to take our time and find a quality place in a warm climate. We have our list of requirements although it changes daily. Once we feel prices have neared a bottom we will decide on an area and home to buy. There are exciting times ahead for the adventurous and prepared Boomers. Is this a great country or what!
here’s where psychology starts working in the OTHER direction.
“If we were interested in another personal use home the math would be different. Quality, quality, quality in the right location, location, location. Very few properties would even make our list. Quality is not granite countertops BTW. Quality is square and true construction, footprint comensurate with the lot size, passive energy in design and materials, adequate zoning protection, and things of that nature. IOW almost nothing built after 1999.”
Couldn’t have said it better myself. Pretty much sums up where I am at, except for the 1999 thing. In the areas that I’m looking the local builder’s do a pretty good job and the there is only one national builder sub-division in the area (out of my price range, plus I wouldn’t buy from a national builder.)
Anyway, for me once I see the right property and it is in budget then I will buy. I don’t plan on trying to spot the bottom. I expect to be buying this at 2001 - 2003 prices.
The right property is a well maintained and well built property. The area will be strictly residential (no mixed use) nor will it be near a landfill, cell tower, power lines, etc. It will have good highway access and commuter train access. The lot will be clean, level and useable and free of easements or other encumbrences. The house will be around 2600 sq ft. 3 or 4 bedrooms, 2 1/2 baths, 2 car garage, C/A, large eat-in-kitchen, newer (less than 15 years old or so).
I will buy it with at least a 1/3 down and around 32% of gross on a 30 yr fixed, that I will amortize over 20 yrs. I have zero other debt and am a very dilligent and disciplined saver. I will leave 24 months of all living expenses in reserves (in CDs, S/T treasuries, etc).
I would never take an ARM, I/O or anything other than a fixed rate product. I would never do anything that would NOT let me max out my 401k and IRA investment. I would also intend to save outside of these plans. I have a very well funded 401k. I am fully vested in my retirement pIan. I am 2/3s of the way to a pretty good pension. I have purchased additional LT disability insurance and LT Care Insurance to help protect against fiancial disaster of illness.
Residential only?
That could well be a negative versus mixed-use once the reality of Peak Oil hits. I really want to be able to walk or bike to a supermarket, video rental, basic necessities, etc.
What opened my eyes is visiting my in-laws in Buenos Aires. They own a very nice apartment in a good area; of course all the lower levels are small commercial. So you can walk to a supermarket, 3 great cafes, 5 restauraunts {quality commensurate with Italy} and two hair salons, and many other things in 5 minutes. Does that depress property values? Quite to the contrary!
When energy is comparatively expensive, the outer ring suburbs of “residential only” become the near-shantytowns and slums.
What I meant by mixed use was..I don’t want the property to abut or be across from a gas station, autobody shop, etc.
As far as the shanty town theory…maybe/maybe not, but for now I’ll take the burbs.
on the other hand, living out of town may be the only way in some developed countries to provide much of your own food and energy. Also, I think that when things get out of hand, the bigger cities in formerly rich countries will be the worst places to be. Of course much depends on the question if you can work from home.
Imagine sharing the 6 solar panels on the roof of your 6 story walk up with the businesses on the 1st floor, offices on the2nd and your 20 other apartment neighbors. Too bad the nice planners pushing density and mixed use approved the high rise that blocks half your sunlight and have conscripted half your cells for running the trolley. Me in extremely exurban SoCal low density location, I’ll be pumping out 10kWh/day and selling it to the desperate density denizens at market prices. My only problem will bee with what to do with all the hydrogen byproduct of the water cooling system after my SUV H2 tanks are full. Sell that to the local transit system as well?
Good luck with that!
Mixed use. Don’t get me started and that’s ignoring your silly peak oil, long emergency, clusterfck nation, Kunstler dystopia fantasy. Mixed use by definition involves compromises. We are talking about not needing to make compromises.
was this directly at me? of DR CHAOS
It indents under Dr Chaos. I actively seek out NURB and SmUG for my special form of abuse. Mixed use is evil. There’s no other word that works. Even discussing MUD exposes the bad smell and gets people all angry.
Robert,
Glad to see you are firmly in the non-tin-foil-hat brigade.
I disagree on Mixed Use, however. It may be a cultural issue, but MUD does work well in Europe, and it could be argued that the only reason it doesn’t in the US is formerly cheap gas and car prices and plentiful land close to cities.
Look on the bright side - high gas prices may result in a renaissance in the inner cities of the US…
Regards,
Loafer
Bah, Robert. I love my San Francisco neighborhood of victorians and corner shops. I may have to drive for work but the car sits unused during the weekends. You may detest the urban environment but plenty of people like it and are willing to pay premium prices to get it.
However, I’m on your side with letting market forces do their thing, giving the people what they want. Even if what they want is a soul crushing suburban wasteland of strip malls and subdivisions. If that’s what you like, enjoy. But please don’t try to imply that there isn’t a constituency out there who wants dense mixed use communities.
And if SF raised transit fares 4.2x current rates you’d even have standing to make those claims about your desireable old San Francisco neighborhoods and market forces. That’s but one example of how the playing field is tilted in favor of density and mixed use.
Loafer,
One of the problem with mixed use properties is that the ground may be polluted, because Gas station tanks are always underground. And industries in the 50’s, 60’s, etc dumped lots of their chemicals on the land.
There are currently 303 properties with “reduced” in the description on the Northern Virginia craigslist. Looking at the ones with photos, I believe many if not most of them have a long way to go (down) before they attract any buyers.
And looking at the ones with photos, a large chunk of them don’t have a stick of furniture (i.e., never lived in flips that are flopping).
I think it’s fair to say that prospective buyers can out wait the prospective sellers who refuse to cut prices significantly.
“In our case, we’ve decided we really LIKE renting.
I can’t even imagine owning a home again with all the plumbing problems, lawn mowing, roof leaks. Even when it becomes cheaper to own again I’m going to have trouble buying.
Crash1
lol - the $212.50 I’ve factored in as an hourly discount variable has taken into consideration my sciatica, as well as the smile on hubby’s face as we sit on the beach while DLL (dear landlord) is cutting our grass, trimming the hedges, etc. We went to a park this year while he was installing a complete a new upstairs bathroom for us. Surely, $212.50, don’t you think?
I’m not buying because I can’t find what I want. I figure if I wait long enough, as more and more houses come on the market, I won’t have to settle for something which is just OK. And even though houses here in the Ozarks are very inexpensive by CA standards, they have still become overpriced for the salaries people make. I can pay cash and I am on the sidelines because there just isn’t any compelling house to buy, prices are falling, it turns out renting is actually not a bad way to live, my “house money” is in the bank making more money. Most of the new houses around here (SW MO) are not built well, are poorly designed, and with atrocious mini-McMansion facades. A typical new house has 4 or more exterior facings (wood, plastic siding, fake brick, fake stone, AND stucco). They look ridiculous. Most of them don’t even have basements and we’re in tornado alley.
Buy some land and have your own house built. There should be enough of a slow down in the building trades in sw MO to make building a good option even in a bust.
Yes, this is what I am thinking. I’m all over the map on this but my latest fantasy is a house made from recycled shipping containers. Because of the trade deficit apparently these containers are practically free. They are well built, insulated, waterproof, and with teak floors. There have been several articles about using them as the basis for a house; a recent article was in the LA Times re: how the containers are piled up eyesores near the port.
But, here’s the other problem, I want to live in a small town which is “land-locked” by I-40 on one side, a flood plain on another side, Business I-40 on another side, and another heavily traveled road on the 4th side. They just aren’t making any more land you know, especially here in the countryside
The Jackie Chan movie “Thunderbolt” features a “home” built of creatively stacked shipping containers.
They are well built, insulated, waterproof, and with teak floors.
Those must be the superdeluxe models, because the ones I work with every day are single-walled Corten steel, and most have been banged around a good bit. Good news, though: they float when they fall into the ocean.
Oh, look: Bob Vila says they’re a good idea.
my attitude 6 months ago was “once prices drop approx 15% i could afford to buy and get myself into a house, even if i have to stretch” at that time i was well aware of the underlying factors of the bubble, but i just wanted to “get it done with” and stop waiting.
Flash forward to today, Saturday 26th 2006. I really dont care. Thats Right, I just dont Care Anymore how much the prices drop - because i know they have a LONG way to fall. Ive tired and wore out of the bullshit sellers have put us buyers thru. Why shoud buyers stretch and Struggle to Buy a first home? Why not THEY stretch and Struggle to GET RID of it instead?
Further, by seeing How quick this has been unwinding, how in the last 2 or so months sellers have voluntarly cut 5-10% says ALOT about where the market is heading. Im waiting for the BUYER gravy train.
MY MANTRA: I WILL NOT BUY A PROPERTY untill its AT LEAST 40% off PEAK PRICES
I WILL HOLD OFF ANY plance to buy any kind of home for at leats 8 months.
I have enought to put 20% cash down, have been saving for years and not gonna give into my impuse because some jackass cuts 50K off his overpriced 550K property.
Your comments are welcome.
btw to dba regarding your post on COOP BOards. There are firms out there that will set up a buyer with a bank account with X amount of money to help them pass the coop board scrutiny. I heard that was done ALOT in manhattan. Otherwise trust me there arent many individuals - even in NYC who can come up with 100k+ in CASH as a downpayment on a million dollar pad.
i’ve looked up negative pledge financing and from what I saw they make sure you are financially stable, not like buying a house in SoCal.
And the co-op boards check you out too so you can get a stated income loan all you want, but you will still have to show your financials to the co-op board.
Dba, having served on a co-op board, I can tell you that isn’t always true. Especially boards in outer boros. I think you are speaking from a Manhattan perspective, but even there I know of buyers who have fudged applications to get in. If you have good lawyers retained by or on your board, snealky loans probably won’t work, but you usually have to be a pretty exclusive co-op to have those resources to truly do due diligence on your buyers.
It will be interesting to watch the co-op market - prices for units in my current outer boro neighborhood already have dropped by 15-20 percent and are falling fast. I hark you back to the 80s, when co-ops went into default (and some back to rental) due to massive defaults by owners who couldn’t pay their maintenance. Won’t be surprised if that happens again here.
97′ prices or bust, baby! Here we come!
Interesting
http://tinyurl.com/plh39
Hi Tx, always respect your comments and observations, tell me how repectable and mainstream is Comstock, I am trying to guage when (not if ) we are going to get a major Stock drop (another black monday in October?) and set some shorts in place. I am trying to figure out if these reports are likely to trigger a fall sooner or later? sorry to be off thread
renting
Another one
http://www.itulip.com/forums/showthread.php?t=365
Remember the pictures of tourists walking out onto the drained ocean floor before the Asian Tsunami hit in 2004? They were lured by the miracle of a surprising opportunity to walk out onto the exposed ocean floor. Fish flopped on the surface. All you had to do was reach out and pick them up.
Intuition might tell you, “Well, this can’t been good. Whatever force has sucked the ocean away from the shore is probably going to send it crashing back in with equal positive force later.” The sudden, peculiar appearance of the ocean floor that had for a thousand years been covered in 100 feet of ocean water says: head for higher ground. Those who failed to do so drown when the water surged back, and when it receded again it left heaps of destruction and human loss in its wake.
Asset bubbles are like tsunamis except they are man-made, out of money instead of water, and instead of lasting for a few minutes they last for years. They draw people in, lured by apparently risk-less money. Just bend over and pick it up. What iTulip.com has been telling you for eight years is this: when you see apparently risk-less money — financial fish flopping on the bare ocean floor — head for higher ground. If you have the means and the risk appetite, maybe grab a few fish first. But in any case, head for higher ground. Don’t stay too long and financially drown.
Beautifully stated. It’s amazing the number of people who look at a barren ocean floor and say, “hey look… free fish!” Even if you have no idea why the ocean has disappeared, or what’s going to happen next, well geez ya should at least think there’s gotta be something wrong.
Or maybe it’s just a whole new fishing paradigm.
Six months ago I was out there too. Ocean floor was very very cool, People. Every refi was a monster chunk of change AND a lower payment?
“Wow. Look at All This Fish. This is just grand!”
*shadow across my brow
I glance at the Wife — just getting a funny look on her face, too…
…then we both GRAB OUR FACES WITH HUGE CULKIN-HOME-ALONE SCREAMS
*I grab her hand “Don’t look back! Just run! Run fer the damn shore RIGHT NOW. RUN RUN RUNRUNRUNNNN…”
That was mid-April. Thank God we made it to high ground.
*breathing hard
…Oh yeah. And of course we grabbed huge ARM-loads (ouch) of fi$h on the way back to shore. In contract (after a fat, non-greedy price reduction early on) by the first week of June. Man, by then you could hear that Wall of Water comin’…
…I have never heard such a terrifying Roar. I was SURE our precious GF would back out…
cha ching. Capital Preservation Time. no debt.
ca$h? gold? euro? drygoods/guns? shorts? oil? sigh.
Maybe buy some RE, say, Xmas 2008.
Something by the shore, I think.
Every day I am more thankful that we were “priced out” last year. We would have been in a 900sf 2/1 in North Long Beach or Lakewood with an 80/20 0-down ARM, paying $3k/mo+ on the $520k mortgage (3 times what we pay in rent now for a 3/2 in Huntington Beach), sweating the coming collapse. I just want to thank all the buyers who outbid us, and all the sellers who passed us over.
When prices for what we want come in line with the fundamentals (30% of monthly gross, 20% down, 30 yr fixed), then we’ll start looking to buy. That’s around $350k, which back in 1996 would have bought us HUGE place. I don’t think I’ll be concerned about the direction of the market when we buy, because it’s an expense, not an investment.
I am thankfully everyday that both of my attempts didn’t happen. One because I was outbid, the other because I snapped out of it.
We really dodged a bullet. It wasn’t until after we’d given up that I found Ben’s blog. Thanks, Ben, and everyone else here!
Me too, I’m really glad the seller of a 900K condo did not accept my very reasonable 840K offer last December. Nice condo, kinda wonder whatever happened to it.
Me too, I was the cold feet queen. I backed out of 2 contracts in the last 4 years. One was a full price offer where the seller countered with a contract taking out the inspection contengency, I walked. The last one I backed out of in Dec 2003, because I got an overwhelming sense of impending doom and could not sleep at night. Luckily there were buyers lined up at that time and I talked them into giving me my deposit back. Fast forward to today and the person who bought that place is in deep do do, suing the developers, ect.
“I don’t think I’ll be concerned about the direction of the market when we buy, because it’s an expense, not an investment. ”
That is such a fantastic point, Curtis. I keep thinking about when I will buy back in in terms of investment (e.g. when will it hit bottom?), but that’s still evaluating the future of housing through the lens of the past investor mania. I should instead focus more on it as a strictly sunk cost–in other words, what do I get every month for what I’m paying vs what I could be paying in rent. Based on that metric, I suspect it will be a long time before I buy.
Thanks for the reminder…
Jon
OnlyUS $4,295.00 ! Wow! what a deal! Of course, the sellers don’t actually OWN the property…
Here’s some rather delusional folks:
http://cgi.ebay.com/ws/eBayISAPI.dll?ViewItem&Item=160018686615&Category=12605
LONGWOOD!!!!!!!! Nuh-uh, my husband worked in Longwood. When we were considering living in that general area…well longwood was never an option, heathrow maybe, but longwood nuh-uh.
Hi,
I recently relocated to the Phoenix area, and what a shocker it was ! Compared to NC the prices here are stupid/crazy, I was planning on getting into a fixer-upper, do the 2yr living and upgrade, but just couldn’t justify forking over 200K for a 1000sq. ft cinder block shoebox. So i’m renting at atleast 50% less than what the mtg. pmt. would have been (+ no maintenance headachs). ARMLS has good statistical data on what the prices/demand is doing, my feeling is that the fuel has run out, there is no tail wind and this flying-circus had a really bad drag co-effecient to begin with!
I’ll be back in the game when we hit $85/sq. ft .i.e 2002 prices..
Just hoping it happens quickly in a few years not like Japan’s 10 yr. spiral.
We just relocated to Phoenix too. I completely agree with you. We spent all of last week looking at both new and resale homes and what a joke! I can’t believe how high the prices have gotten for a stucco box on a tiny lot. Most of the homes have virtually no curb appeal too. The garage is over 75% of the front of the home. We decided on renting a home at a fraction of a monthly mortgage. We want to buy, but will rent until prices go down significantly!
We are moving to the Pullman, WA - Moscow, ID area (eastern Washington) in Dec for a new job. We have close to $150k in liquid assets ready for a downpayment (3 mo treasuries, foreign currency CD’s, money market, etc…) with more agressive investments in our retirement accounts. Between my wife and I, we’ll be pulling in 6 figures annually. We can certainly afford to buy a house in either Pullman or Moscow (7 mi apart with a free bus every 30 min), but are still holding back on pulling the trigger.
Why? Prices are nearly double what they were in 2000, and though we can afford a nice but not by any means extravegant home ($300k), it will not leave us a lot of slack. (Assuming 15 year mortgage, $100k down, $50k reserve.) I grant you this market is not expensive by national standards, but by the standards of local wages how many current residents could actually afford to buy a house in this town?
Ironically, my wife–who has been pining for a house the past four years in Bozeman, MT–is very wary of buying right away in Pullman-Moscow. She sees the Bozeman market tanking and a thousand “for sale” signs sitting all summer, and hears from contacts in Pullman that the market has mysteriously slowed of late.
Yes, we can certainly afford to buy. But we can also afford to rent at half the cost of buying. And if houses are depreciating, renting starts to look like a better deal.
I could have very easily bought a home year ago, but since I am so young, I had little credit history, and I had not been with my employer for any length of time, my options were slim. I have a solid job with a great income and were I offered a decent loan, I would have jumped on the “Real Estate always goes up” and “Buy now before you are priced out forever” band wagon. Instead I went home and began doing research. Reading local blogs as well as national ones. Keeping an eye on interest rates and forming a solid understanding of home loans. I watched as I was priced out of the market and the majority of my friends bought multiple homes on their way to “easy money”. The math was not adding up, I couldn’t understand how homes could rise in value so fast, but I wasn’t jealous of my friends. I was happy and hoped they would succeed. Any time the conversation came up about home much money they would make, I would congratulate them. I am truly happy when those I care about succeed.
Now a year later I feel incredibly lucky. I was “this” close to buying in, at the height of the bubble. I really can’t gloat about it, I was almost an FB.
We are in Central Oregon and our market was very hot, we have an extra surplus of new homes as well as old. Our market cannot sustain the prices people bought their homes for. So my wife and I are planning on saving and renting for as long as it takes to find an appropriate deal. 99′-01′ prices are where we believe our market is headed. If it takes five years to see the market get there, that is fine with us.
Nice to see an intelligent, rational, thoughtful future buyer. Keep up the research, my friend! -
We sold our rural Oregon home last November for twice what we paid, and after settling the second mortgage and spending some, we have 26,000.00 left. We have been renting a home on over an acre for 775.00 per month. I don’t know where we’d find a home to buy that is comparable to this one for the same amount of money. However, real estate prices are coming down and inventory is really up here in Southern Oregon. I figure that the Californians can’t sell their homes in order to move here like they have been, and locals can’t sell their homes to “move up”. To me that pretty much explains it. Anyway, we won’t buy again until prices drop back to appropriate levels. We see homes that we considered buying back in 1999 for 75-80,000 that are now for sale again for 247,000.00 and up! We cannot afford such expensive housing what with the wages being what they are here, and not to mention the fact that I feel that most of the job growth in this area is in mortgage brokering, realtors, construction, and service jobs catering to the influx of retired Californians. One thing we have noticed in a upscale sub division by our house is that, homes started aren’t being finished. All last rainy, cold winter they would be working ’til dark. Now, no one is working on these homes and the only workers I see are landscapers watering all of the unsold homes that have been for sale since last October.P.S. I have heard that this was a housing bubble since 1999, from Executive Intelligence Review. The term McMansion was first heard by me by EIR years ago also.
Is EIR LaRouche’s newsletter?
I’m not buying until buying is more affordable than renting at the current rental rates here in the Bay Area which means house prices must drop AT LEAST 50%. If it never happens then I will buy a retirement home in Idaho that I will rent out until I am ready to retire and hopefully by then, it will be paid off. If the current rental rates in the Bay Area increase more than 100% to match the housing market, then it is not worth it to stay here. This is not only the way I feel but I think it is a reality now for most renters who live here. If a first time buyer bought a house here at the current prices, he/she would not live long enough to pay it off. There is something fundamentally wrong with that.
I still like the “1997 prices plus inflation” definition for when the market is sane. I believe that prices may go lower and that there will be banks begging those of us with real money to take houses off of their books for pennies on the Dollar at that stage. apologies to the person on this blog who came up with this figure for not being able to call you out.
BTW, Thanks Ben, really, for everything (laughs, facts advice and ideas). You have saved me a frigging fortune I figure. I have just contributed to this blog by paypal, I strongly urge everyone to think of how much money they have saved from reading this blog and donate!
I just moved to Miami from NYC - to take a tenured position at the university. If I buy something, it probably would be for cash (I have a nice chunk stashed away from a couple of years on Wall St.), but at this moment prices and ownership costs don’t make any sense, anyway.
Say, 600k would buy a pretty crappy house in the Pinecrest or Coral Gables. Even if you don’t have any mortgage payments, taxes would run at least 10k/year, and insurance/dues probably 6k or so (more if this is a condo in one of the newer developments).
So, one ends up with ~$1500/mo in costs + at least $2000/mo lost returns on the cash invested.
The condos are still going up, not only on the waterfront, but inland as well. In Dadeland, there are 2000 units about to be unleashed on the market.
It is hard to see how this market can avoid correcting by 25-35% within the next 18-24 months, so I fell quite comfortable sitting on my cash, and renting a condo.
i tol my husband that i think if we wait until the winter of 2007/08, IMO the sellers should be medium to well done. i’d like to wait until they’re burnt to a sizzlin’ crisp… but i don’t think my hubbie is into renting that long.
Give him few months or so: if this keeps getting grimmer and people close to you start losing homes and jobs, then you’ll have the opposite problem: convincing him to buy when everyone else is saying don’t….
As for being “fence-sitters” I suppose that is what we are. We will buy in the best location that we can afford that will be near our kids’ employment. When we buy, it will be with at least 20% down, maybe even 50% down.
But we most definitely are not buying in this market. Homes are waaay over-priced. I remember when townhomes in Turtlerock (Irvine, CA) were 210k in 1997-99. Now, these same townhomes are selling for 635k.
We will wait for the flippers and specs to be washed out of the market. I am outraged that greedy people turned a basic necessity into a Las Vegas gamble.
I wasn’t too crazy with being termed a “fence sitter” personally. I would like to buy, but prices have to come 30% before “fence sitter” would be the right word, and probably even more than that before I start really looking for a place.
“Fence” is the wrong word because it implies a very short term uncomfortable place of transition. In this housing bubble, the “fence” is actually incredibly wide and comfortable, a palatial place to be… This is a fence that is so expansive I could spread out here and live comfortably for years and years if necessary. One could come to think of the fence as a permanently green and comfortable plateau.
The term “fence-sitter” also suggests indecisiveness. I sure don’t feel indecisive about why I am not buying right now, a certainty that seems to be shared by many other posters here.
I am definately waiting this one out. But as far as sitting on the fence, hmm, maybe. I have come to regard the current RE adverts in my local paper as “THE funny pages”, but I browse them quickly to vet what I see online insofar as prices. I busy myself with much more than eagerly sitting on the fence watching and waiting for something to change. For me to become a buyer here in OC either my income will need to rise dramatically or property prices will have to come down significantly for the simple reason that I do not see the value in local RE today at these prices. I believe it is grossly overpriced and will continue to be so until sales prices move into alignment with rentals for same type property. Now some may take this as a call to raise rents, but rents are where they are as a result of economic fundamentals rather than the insanity we just witnessed with sales.
So, am I sitting on the fence? Maybe just peeking over once a day to see how things are over there in bubblemania. But I must admit I do get sucked into the whole “Train Wreck” aspect that is slowly unfolding.
With apologies to The Dead,
Driving that train, Learah’s no brain
BK court is ready, watch your speed
Resets ahead, bubble behind,
And you know that notion just crossed my mind.
This housin market just spun on a dime
Some say the peak was last year at this time
Voodoo loan resets in the billions come soon
Shortly thereafter you’ll be feelin the pain
Driving that train, Learah’s no brain
BK court is ready, watch your speed
Resets ahead, bubble behind,
And you know that notion just crossed my mind.
Trouble ahead, Suzanne’s in the red,
Take my advice youd be better off dead.
Bernanke’s sleeping, train hundred and two is
On the wrong track and headed for you.
Driving that train, high on cocaine,
Casey jones is ready, watch your speed.
Trouble ahead, trouble behind,
And you know that notion just crossed my mind.
Trouble with you is the trouble with me,
Got two good eyes but you still dont see.
Come round the bend, you know its the end,
The fireman screams and the engine just gleams…
excellent post!
With the jaw dropping level of greed and fraud that has come to be known as the RE market of the past few years, I have NO interest in buying for several years at least. I’m happy with renting and staying completely free of the fray of fingerpointing, lawsuits, legistation and anxious hand-wringing FB’s that will be dragging the market down soon as the details of what REALLY went on start to come to light.
I might consider buying when…
-The ridiculous amount of Monopoly money which is being used for purchases and refinancing has been bled out of valuations a few years from now.
As insane as it has been, I am not even going to try to put a percentage to the drop in prices that it would take to make me reconsider. The neighborhood I live in could look very different from the way it is now if the economy tanks. We’re heading into uncharted water with an asset/credit bubble that few understand the size of.
-Exotic loan products and hocus-pocus HELOCs would be extinct. 20% down, a thick volume of verified documentation, 3 weeks for approval and your first child if you want to purchase a house, please.
…Or at least gone until there’s almost no one still alive who remembers why they were such a rotten idea in the first place, similar to the interest only ‘balloon mortgages’ of the 20’s.
A new term for reduced is “New price”. I’ve seen this used in a number of listings. Add this to your key words when you search for real estate.
Folks:
Wondering what you guys think of prices here in Stamford, CT - it’s a New York suburb pretty much in the epicenter of hedge fund land. We have a UConn here and a fairly nice downtown with a large commuter rail system and I-95 nearby.
My $1100 rent gets me a fairly big 1 BR place with a parking spot in what I consider a “middle class” neighborhood for the area.
That said, home prices seem to be a little out of whack. My apartment complex has some condos which zillow in at $230K+ - fairly out of whack. Some of the *very* pedestrian homes on my street are zillow’d at $1M +, and the townhome complex that went up has $639K for a 3 BR luxury unit with a 2 car garage.
The reason I’m a bit leery of these prices is my form of reference - my parents built a mansion for for $1.1 M in 1993 in Princeton, NJ; sold it for $1.6 M in 2001 and bought a smaller a 4 BR home in Yardley, PA, a Philadelphia suburb with SEPTA access and an adorable village for $500K.
Here’s a realtor link to the $639K townhome and its $580k cousins
http://raveis.com/brokerpropdetail.asp?STATE=CT&ID=B421DEDF-BD47-4CF0-A1AD-BE64BABD0991&ALIAS=propquickfind.asp&SRC=mls&FROM=propquickfind&PG=1&KEY=1405578&FSTKEY=1405578&LASTKEY=1584377
I recently moved out of Rye Brook…100%+ run up since 1996. I’d say the whole area is in for a down fall…not as bad as SoCal, FL, MASS or AZ, but still will take quite a hit.
Schools are important up there…I’d suggest a good school district and a smaller place if you do buy…those areas will take less of a hit (but still you are looking at 25% even then).
My wife and I are “fence sitters” here in Boston. We have been for quite a while now. We got priced out of the market and have watched as things got more and more expensive. Everything being built is termed “luxury” and the price for things is way out of line compared to regular income levels which is what we are earning. So as over priced condos sprout on every corner like bad mushrooms, we will wait and keep saving and renting and see where all this leads to. Hopefully in a couple of years we can find a place that fits our needs and budget, but until then, we will sit tight . Thanks to Ben Jones and everyone who has shared their stories and thoughts.
I’m not sitting on the fence. I live in Renttown and keep peering over the fence to see what kind of activity is going on in Homeownersville. What I see is a lot of angst, worry, sometimes hopeful optimism speak (that is very obviously only cheap talk trying to assuage fear), and a LOT of debt burden. Satisfied at what I see, I turn back towards Renttown and pour another cocktail while I pay my rent, bills, and then transfer some more money into my savings account. And I go to sleep at night peacefully knowing that, while I may not live in Homeownersville - yet, I have zero debt. Then I dream of price drops!
Waiting for prices to revert to ‘normal’ levels, relative to income, which would mean a 30% to 40% drop from bubble peak prices last August.
I fully believe home prices were set to drop in 2001 here in San Diego. IMO, the peak of the natural housing cycle morphed into the credit bubble almost without hesitation. Since wages haven’t gone up since 2000 (in my circle, many have lower incomes now), I see no reason for prices to be above 1999 levels unless wages rise. Even factoring “1997 prices + inflation” is too generous since the CPI give us **cost** inflation, not wage inflation. Cost inflation is deflationary for housing prices as more of our income goes toward healthcare, education, energy, food expenses, etc. It leaves less for housing.
Also agree that mobility and flexibility will be extremely important in the future, as will saving for one’s own retirement (IMO, pensions and SS will be in deep trouble in the future) and healthcare costs (more of us are having to shoulder a greater portion of these costs as well). Then, there’s the demographic changes (Boomers selling to pay for retirement, or willing homes to their children when they pass away, removing those children from the buying pool, etc.). No guarantee that housing prices will always go up, even in the long term, since we’ve never seen such high prices relative to incomes, rents, deviation from historical trends, etc. I see powerful deflationary forces ahead — and it looks like that might be the case for a long, long time.
Renting may well be preferred over “owning” in the future. There is also a major global demographic shift where people are moving from “developing” nations to the more industrialized nations. This movement has really accelerated over the past five years. We do not know how this will impact neighborhoods, housing prices and preferences. Should be some interesting times ahead in so many ways.
Great to be here on this blog to get such varied perspectives from so many intelligent, creative and informed posters.
Thank you, Ben!!!!!
“I fully believe home prices were set to drop in 2001…”
I totally agree, in late 2001(after Sept) and most of 2002, here in FL we had zero tourists. We would go to the theme parks and have the place to ourselves, walk right up to the front of every line. There was no ecomony here then. Then came a massive explosion of building and credit. We would go out driving and watch houses springing up almost overnight. Construction trucks caravaning down the roads.
All created by the lenders suddenly having a lot of money to lend. I remember in 2002, whenever I would go into my bank and get in the teller line, Jane, the loan officer would spy me and come running out and start chit chatting with me. If I was at the back of the line she would say here I take care of that for you and do the transaction for me so I would not have to wait.
Now, sometimes I look and act like a hillbilly, but I am no Jed Clampet by any stretch. I remember thinking, “This is very odd indeed”. And of course we know what happened next, buckets of money was given to builders and the masses to grow and feed this thing.
The traditional tourist economy here was taken over by a building and real estate economy. And the people were very, very happy and very optimistic.
Waiting_in_la,
I loved your Tsunami analogy. I printed it out. I think that is about the best explanation I have been given.
I just wish someone would tell me where the higher ground is? Should I save all my excess income or pay off the only debt I have, student loans at 2.75%. Should I put anything in the market, or keep it all in a high yeild savings account, and even with the high interest rates, is rising inflation and taxes going to drive down the value of my savings.
In other words, where do you put the money while you amass a down payment. There was a time when I didn’t think I needed a downpayment, but I’ve been converted. I feel silly having a large chunk of money in an internet saving account.
Do the math. If you are getting 5.15% at Emigrant can you do better by taking the student loan money out of savings there and paying off that loan? Or is that chunk of money in effect paying off the interest and then some? I read that Pimco’s bond fund was only yeilding 1 or 2% so that internet saving account yeild seems pretty good to me. For me the course is to find the highest secured rate - low risk/best rate - for the bucket I am saving into for the DP. And patience is the watchword. It saddened me yesterday to hear of a friend who capitulated and bought at the peak some montsh back. This lady and I had talked about the bubble risks and yet she somehow was conviced to buy and use an ARM. Truly sad.
I’m not so sure “staying out of debt” is the right thing.
If inflation occurs, the dollars you use to pay back the loan will be worth less. If you buy a hard asset (unfortunately land isn’t a good choice here since it is also inflated right now) that has REAL value that goes up, that’s a good thing.
Hyperinflation will wipe out debts and if you get PAID more, woo hoo!
Only if there is WAGE growth. Hyperinflation sucks if your wages lag prices; ask people who’ve been in South America during any of their problems.