What Do You Consider A Buy Signal?
Readers suggested a topic on acceptable entry levels. “I’d like to recommend a weekend topic of what price and area people are going to buy in. What are they going to consider a buy signal and what will make them hold off? I think I’m going to get a condo in Miami, downtown San Diego, and Vegas for vacation rental biz. Maybe even a home in Costa Rica once they dry up like a dead dog.”
“The condo’s would have to be buy-one-get-one-free for me to jump. I think if they want to move property they will get better action that way. One to live in and one to rent. Can it get that bad?”
“We are in the second inning of a perfect game…the only thing that can keep it from a perfect game is the kool aid buyers diving in front of the fast ball!”
A reply, “If sellers in my area would accept an offer 10-12 percent below asking, that would be my signal. I’m not waiting for rock bottom. I just don’t want to pay for anything hideously overpriced.”
“Currently sellers are obstinately holding out for their wishing prices, as the comps slowly but surely reset downward.”
One has this buy signal, “Here’s the answer: PACKAGED FORCLOSRES.” “For a limited time you can get a condo in Miami, a beachfront house in Texas, and a Boat in Washington State…..all for the price of…[insert b***s**t finance package here].”
From MarketWatch. “Home sellers are not automatically turning up their noses at offers that come in far below their asking price these days as prices stagnate and the inventory of homes for sale remains elevated in many markets.”
“But buyers who do ask for deep discounts still risk offending sellers to the point where they quash any deal. So before making an aggressive offer, some homework is in order, real estate professionals say.”
“Further, buyers need to effectively explain why the price of a home should be lower. That’s what Pat O’Heron did recently when buying a home in Ann Arbor, Mich. He was able to negotiate a steep discount with a seller who relocated for a job, in a neighborhood that had two years’ worth of inventory on the market.”
“Before he even made an offer, the asking price had already dropped by about $80,000, he said. After O’Heron made his case why the cost should be even lower, he eventually bought the home for $270,400, with about $11,000 in other credits. The net price ended up being $115,000 below the initial asking price.”
“‘There’s a danger of them taking it too personally,’ said Jon Boyd, president of the National Association of Exclusive Buyer Agents. ‘When you’re making the offer, if you justify that offer with outside data, then it’s much less likely to be perceived as being an insult or (the buyer) not as serious,’ he added.”
“If the sellers have already purchased another home and that sale has closed, they’re likely to be more willing to make a deal, said Dick Gaylord, president elect of the National Association of Realtors and a broker based in Long Beach.”
“And certainly if the property has been on the market for a long time, sellers will be interested in entertaining any offers, he added.”
“‘If we just looked at the relative values of the houses that sold, we would end up paying too much for that house because we know that the values are going to fall,’ he said. ‘If we see two years’ worth of inventory, we should be buying 5 percent, potentially 10 percent less than what houses have sold for in the past year in the neighborhood.’”
“Buyers may even personally write a letter to the sellers to make their point, as they did when the market was hot and they aimed to stand out from the crowd, Gaylord said. That way, they can detail what they like about the house but express their fear of future dropping values.”
“‘The difficulty we’re having in my market right now … sale prices are not dropping, things are staying on the market longer,’ Gaylord said. ‘Buyers read about how terrible the market is; sellers don’t want to budge because they’re reading that prices aren’t falling.’”
“Danielle Kennedy, a real estate sales coach based in Pacific Palisades, advises sellers not to think of a low offer as an insult but as ‘a sign of interest.’”
“‘And it begins the dialogue regarding the purchase of your house,’ she said. ‘They should make every effort to be grateful that an offer has come in.’”
“Also, not all hope is lost even if a seller doesn’t bite immediately. Sometimes after time elapses, the seller comes around and decides to negotiate, Boyd said. Or new information, such as the sale of a comparable home at a lower price, can nudge a seller to give an aggressive offer a second look and open the negotiation process.”
Some of you guys are awfully antsy to buy a house! Maybe another way of looking at it is, ‘what is an acceptable amount to lose for the pride of ownership’ thing…’
‘All in good time. Nearly everything - even the iPhone - eventually goes on sale. But certain items go on sale so often that you should never pay full price. The trick to making sales a staple of your shopping diet is patience, according to bargain hunters and marketplace masters.’
‘A little bit of delayed gratification can go a long way,’ said Helen Malani, a shopping expert at the West L.A.-based Shopzilla, a Web site that compares the price, rating and shipping fees of more than 30 million products from about 90,000 stores.’
Personally, I have no desire to buy in the next 5 years. My wife and I are happy renting and love the freedom we have as debt-free renters. Our employers have nothing hanging over our head. I’m with you on this one, Ben. I don’t know why anybody on this blog is so anxious to buy. There is no shame in renting but there certainly is a lot of freedom.
“Our employers have nothing hanging over our head.”
It must svck big time to be a home debtor with an underwater mortgage in an industry with layoffs (e.g., home mortgage lending). Talk about putting your employer in a position to make you work like a slave!
For the average J6P (and I include myself in that group), the case could be made that home ownership is no longer a good idea, for the following reasons:
1) Because of the current employment environment, being able to pack and move in 30-45 days is going to be a benefit, especially if the new employer is footing the bill for relocation…..and some people just aren’t going to be able to move, because they can’t get out from under their house.
2) It used to be that the property was handed down to the heirs…..back when everyone was farming. Now, nobody “passes the farm down” to the kids; property usually goes up for sale when the parents die.
3) When tax receipts start falling short, I fully expect state and local governments to go after the shortfall from the group that will have a toughest time “voting with their feet”
..the residential homeowner.
I’m in that category. I anticipate either going to the east coast next weekend (with my cat, my laptop, and a suitcase, that’s all) and start work on Monday. Or…take the job that was offered to me 6 hours after an interview on Friday of last week in the Phoenix area. Still agonizing over what is better! I’ll stay in Extended Stay for a couple of weeks and then into a furnished 1 bedroom apartment if I go to the east coast. That’s the way to go. Traveled light before to the east coast, took a month-to-month lease, and leaving was soooo easy when moving back west!
THE SIGNAL FOR THE BOTTOM:
I’ve been trading in the stock market for 30 years and one thing I learn and I learned well is never catch a falling knife. This is not going to be a V bottom. The market is going to stay in the bottom for 2 years at least. So it is stupid now to try and time the bottom. Everyone and his brother will know the bottom has been reached because for 2 years the prices would not be going further down or up. They’ll just be wobbling in the bottom. That may not start happening till 2010 however.
So don’t try timing the bottom and catching a falling knife. Let prices continue to fall and after a year has passed that prices are not falling any further you would know the bottom has been reached.
And BTW, even after the bottom is reached don’t expect to make money again in real estate for at least another 20 years IMO. Because I expect even after the bottom is clear, house prices will rise but will NOT rise more than the inflation rate. And that is any terms still means a LOSS.
I can explain this, at least from my point of view. I don’t like renting all that much because I don’t like being told what I can and can’t do, how long I can have guests stay, where I can park, whether or not I can put pictures on the walls, etc. For the time being, renting is OK with me, but I really do want a cheap little concrete block POS older Florida house in a modest but relatively safe neighborhood and be able to do what I want with it. No HOAs for me.
There is a certain amount of stability in owning a home under normal conditions. For the time being, however, Florida is NOT a stable market in many areas of the state. Taxes, insurance and demographic shifts are a concern for me and I’m waiting to see what happens with those issues. I’m thinking that will take at least a couple of years for that to shake out.
That’s kinda how we feel. As long as we can afford it within our means and easily even if one of us loses a job, then to us, it’s still a good deal. It may not be bottom of the barrel bargain basement prices, but it’s “good enough” for us. Plus, the luxury of being able to pick out the things we want (since we would most likely do a new build) is more palatable to me rather than picking over the (albeit fat) carcasses of the foreclosures, etc. We’re very particular and picky about where we live. But for us, it all comes down to whether the price is within our means — not if it’s the absolute rock bottom best price we can possibly receive.
–
‘The trick to making sales a staple of your shopping diet is patience, according to bargain hunters and marketplace masters.’
For the past fifteen years, I have been able to buy premier cuts of steaks – New York, Rib eye, Porterhouse, etc. – at below $4 per lb, on sale, in one super market or another at least once a month. Sometimes even below $3. Regularly, the same are priced like $7.99. The same goes for premium brands of liquor, wines and most of the beers my friends like (I am not a beer drinker). No inflation for me when I invite friends for BBQ. The cost of fuel is zero (wood-burning BBQ pit and wood is free and in plenty so we keep the fire going).
Inflation, or deflation in my case, is mostly a matter of choice. Poor shopping habit is the number one cause of inflation for many products for most people.
Jas
Buy Signs? Only when the following happens (some of which are just starting):
Credit is tight
Foreclosures are decreasing
Homebuilders are bankrupt
Earthmoving equipment is rusting in place for a year
The stock market has corrected 10-25%
Unemployment is rising
and finally….
Owning is the equivilant of renting and prices are 10 times the annual rent.
Until then, why bother? Owning it too much hassle and too big a risk today.
you sound like a buyer:
credit is tight.
Bailout on the way on foreclosures, before year end.
Homebuilders ARE bankrupt they are just in the closet.
Drought in the bubble areas are not conducive to speedy rusting..
stock market had a 10% correction already.
unemployment IS rising.
Im just pulling your chain a bit, but all your requirments are in place, all except for PRICE. That my friend is gonna be a long wait.
forgot to mention, Foreclosures decreasing is coming in the form of partial bailoout strategy, 1. gettting perfomance out of ARM’s through the quasi-agencies (Freddiand Fannie), coupled with an abatement of the 1099-C Debt forgiveness that once was added to income and taxable shall soon become, TAX DEBT forgiven by the IRS.
Essentially removing the barriers forestalling foreclosure.
Voz, signs of a wound and a little bleeding are a long way from DOA. I appreciate your thoughts, but the carcass must stop moving and we should begin to see rigor set…..
Jingle;
Well said. My feeling is the stock market will lose more than 25%, I’m thinking more in the 40 to 50% range, other than that I agree totally.
All I can add to your criteria is when the median price of a house is 3 times the median wage, wait 6 months to be sure prices are still not declining. I think prices will go below the historical rules of thumb.
I agree Jas. My wife and I have kept track in Quicken of every penny we’ve spent since 1994. We haven’t noticed much increase in graphs of our food spending, for example over the last 13 years. The thing we’ve noticed is that we buy less frequently and when we do buy, we buy more quantities at once so we have enough to last until the next sale.
That still equates to inflation. It implies that everyone has the resources to buy in bulk.
Still I agree wiht Jas that poor shopping habits creates inflation in personal expenses.
Oh, come on!
One can buy a gallon of milk per week, or 3 gallons every three weeks when the sale price is right. It doesn’t cost any more resources to buy in bulk. In fact, the whole point is that it costs less!
3 week old milk is disgusting, nothing is as good as really fresh food
but the thought applies to non-perishable food
One reason I’m antsy is I’ve already been waiting for four years. Realistically, I don’t see myself buying for another three or four because here in SF proper the crash hasn’t even started yet. It is a bit frustrating to know that I have had to put homeowning plans on hold for eight years, which is longer than a foreclosure stays on your record… needless to say that erodes most of my remaining sympathy for those home”owners” getting foreclosed on.
I will purchase when things get back to “normal” and there is a reasonable inventory so that I can pick the exact house I want. I am not looking for a steep discount, more looking for reasonable prices combined with a variety of options on different houses and neighborhoods. But it will be a long wait just to get back to where we started, and it’s hard not to be a little impatient to get there.
Don’t worry, it’s coming to SF sooner than you know …
I will buy when on the cover of Time (or Businessweek, Newsweek, etc.) it says “Only Suckers Buy Houses” or “The Joy of Being a Renter.” That’s when I’ll know it’s time to get serious about buying.
“I will buy when on the cover of Time (or Businessweek, Newsweek, etc.) it says “Only Suckers Buy Houses” or “The Joy of Being a Renter.” That’s when I’ll know it’s time to get serious about buying.”
My sentiments exactly.
Aah, the contrarians! Good views though … I know a lot of contrarians who have made bucks from RE buying and selling.
Rothchild said “Sell in good times and buy at the sounds of cannon”
Great advise from the King of the contrarians.
With a cartoon of a bear taking a chunk out of the backside of a ‘gold jacketed’ Realtor.
It’s gotta be 50% off, and even that means I’m paying cash to live in it, expecting it to slide. Check the US Census data through 2012. Read a few books on China. This is not our century. You know where I am every Sun-Thurs at 9 p.m. CDT? Right here, watching candlesticks on Hong Kong Stock Exchange charts.
“This is not our century.”
That’s the real issue - what will Americans do once they realize this en masse…
I disagree.
I believe that we will be the main superpower until the end of time, if only because of our land, (especially our) people ,constitution, and peaceful neighbors with ocean moats.
Yeah, it’s debatable. We are the only nation who was founded on principles of economic and political freedom. No other country has as radical a rag as the Declaration of Independence. On the other hand, education is in a shambles in America. I think there may be an effort in the U.S. educational system to discredit the principles of America.
Bill;
When my kid’s “American” history book has less than one page on the Constitution, the founding fathers and the basic principles upon which our country was founded, and yet has full chapters on “Womens Rights” and the Viet Nam war, basically told from the prospective of the war protestors, I would call that a blatant attempt to discredit the principles of America.
It was wrong to treat women as second class citizens. Viet Nam was lost by Walter Cronkite and Hanoi Jane Fonda and their influence on the American people. I didn’t see that mentioned. However Cronkite’s famouse ” This war is lost” broadcast during the Tet offensive was elaborated on. Oh, by the way, we won Tet. The communists did not achieve any of their major goals. Look it up.
Before you spout right-wing propaganda, you should actually listen to what Cronkite said. (I did not hear “this war is lost”)
http://www.youtube.com/watch?v=i214f5-w19w
You should also expalin how an editorial from 1968 lost the war 6 years and two Presidents later.
They’ll deal with a lower standard of living. I love my country, but there is no way to love it out of the economic-demographic reality that we can’t export our way out of this. Our manufacturing capacity has atrophied, we don’t have enough arable land to increase our exports to that extent. We have no solution to R&D and manufacturing, lowend and highend, taking place in China and services in India. The things we could do to at least share power are unlikely to take place given our current electoral system. Without public funding of candidacies and government industrial policy, corporations are forced to go it alone, cut their own deals with our competitors and serve their stockholders via lobbiests and any other means they can grasp. Demographically, Japan is the first to go, shrinking from 127M to 100M. Then Europe, then China. In the end, India wins. They’ll have the population growth to support their seniors. No one else does.
Good things come to those who wait and save …
How about when the HBB becomes the HDB.
There is only one reason i’d buy any real estate, anytime soon…
That would be lock solid evidence of hyperinflation, about to roar~
Hyperinflation versus Gold, is like anti-matter versus Matter
Imagine locking in a 30 year fixed @ 7% on a $500k property, and watching the Dollar erode to the point where one might pay off the house in a few years, it’s just a pittance to pay, in reliable Gold Dollars?
Only through the wizardry of Hyperinflation, can one buy a $500k house for perhaps $5,000?
‘lock solid evidence of hyperinflation’
This is sort of like those who say the Fed can ‘just’ lower rates and the market will take back off. If the Fed starts cutting rates, it is because we are headed into a recession; not exactly the best time to be tied down to a house. IMO, it would be the same if the economy is wracked with inflation. But I’m in the deflation camp.
The world is awash in Dollars, and those Dollars will be looking for a place to roost, and there aren’t many high value roosting places for those greenbacks to go to, is there?
Our freshly completed, never occupied dwellings could be quite attractive, to foreigners with the Dollar Americano, to get rid of.
Imagine citizenship being dangled, to those with 20% down?
You’re assuming a dollar once created cannot be destroyed. IMO, liquidity is evaporating at a great speed, as pushed for by the Bank of International Settlements and the G8.
–
Right you are, Ben.
Money = credit = debt.
When the debt starts to go down, the money gets destroyed. The Peak Debt would be a monumental event for the US economy. It is coming soon if it is not here already.
Jas
One spanner in the works is, that this is one of the 1st bubbles in which a very necessary part of life (shelter) is completely involved.
This isn’t a tulip bubble, or stock bubble or something else, one could easily do without.
–
I grew up in a village where almost everyone owned their home (many were huts). Only few out-of-towners had to rent and there were many vacant homes of those who had emigrated for better economic opportunities.
In bigger towns and cities there were renters, again more likely to be recent arrivals. Mortgages were extremely rare and never for a new purchase (some borrowed on their homes later out of necessity, but this was rare).
Own meant own! It was truly own or rent. There was no propaganda to make people believe otherwise. Home-debtors are not homeowners; they are debt-slaves if you ask me.
Jas
As mentioned by aladinsane: “This isn’t a tulip bubble, or stock bubble or something else, one could easily do without.
”
That is what really scares me. There seems to be no real source of money for J6P after housing is wiped-out. Many have tapped into their retirement funds to purchase real estate. Where will they go now that there is no money left, jobs are disappearing, stocks are crashing, and the USD is devaluing. I have a feeling that suicides will increase dramatically within the next year or two.
I would love to live in India, Jas. But I’ve heard the bubble is even worse there than here.
I can see tx clinging on the side of a train in Mumbai
“You’re assuming a dollar once created cannot be destroyed.”
I would venture to guess that it is far costlier to destroy a McMansion than, say, 50% of the amount of greenbacks which would have bought one at 2005 prices. Paper burns much more easily than a house.
Destroying McMansions would be inflationary, while destroying greenbacks is deflationary. To put this another way, an excess supply of McMansions relative to the number of greenbacks creates deflationary pressure. Perhaps the Fed should trade its helicopters for bulldozers?
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Chick,
I wouldn’t “love to live in India” because the insanity spread there rapidly. It has changed people’s behavior for the worse.
Bubbles not only are laden with fraud they change people for the worse, IMO. Opportunists look like heroes and sane people are made to look stupid. It is scary if you think about what lies ahead.
Jas
the difference between a dollar and a house is that the dollar is etherial, created from nothing, and so easily returning to nothing.
Just to give you an example about India, my parents bought a plot of land for $14000, in ‘94 and sold it in ‘06 for $350K. Although ‘officially’ it was about 100K. Never paid any taxes either.
Latest very good arguement on why the FED cannot and should not rase rates.
http://www.oftwominds.com/blog.html
Latest very good arguement on why the FED cannot and should not lower rates.
http://www.oftwominds.com/blog.html
Latest very good argument on why the FED should not exist.
http://www.safehaven.com/article-8369.htm
“Number one: Inflation. Since its founding in 1913, the dollar lost over 98% of its buying power.”
I don’t understand this. Inflation is built into the system. Everybody wants a raise every year. How could we all get our 5% raises and nothing goes up in price? If I get a 5% raise and prices go up 3% then I’m happy.
from the article:
“Imagine if we have a downturn like 1980-82. We might see bankruptcies on a scale like nothing since the 1930’s. ”
lets talk working lives. a 30 year old in 1980, is now 57 and approaching retirement who is probably plowing in as much money as possible into the 401k. While the 30yr old now is spending it all to feed the family.
A learning process needs to be inserted into the now 30’s workers… how can the powers that be punish the 30yr old, while saving themselves form another painful lesson?
guidance going forward: save money. curtail spending, and pray. We need the pain, if for the sake of learning that excesses are neither prudent nor sustainable.
The 30 year old is attempting to pay back his enormous student loans, thanks to real education expenses and lower grants far higher than in 1980, and with a greater necessity to go to college and further for any reasonable job.
Plus health care costs for both have exploded.
Remember, toys etc from China are cheap—it is ordinary but necessary services like education, child care, health care and the plethora of insurances which have gone insane.
I got clear of my school debt a few years ago…all debt actually, and there was a lot, due to many, many stupid things I did. Seemed like the right thing to do. With all the bailout and inflation talk, I’m not so sure.
Getting an engineering degree seemed like the right thing to do, too. Turns out I should have stuck with arithmetic and got my realtors license or brokers license. Nobody seems to have much use for engineers anymore.
I would not advise anybody to fork out for an education at this point…especially if you have to borrow for it. Seems to be a depreciating asset in these times.
Reminds me of a post here long ago, paraphrased: The cost of everything you want is falling while the cost of everything you need is rising.
NYCityBoy,
There was no inflation because you can’t inflate real property. You only got what others paid - and it was almost imposable to get credit - thus everyone lived on what they could muster - not what they thought they could over the course of umpteen years…
Very diferent system and we’d have to kill all the social programs. Don’t think Americans have the stomach for it, but a recesion will test everyone’s “charity” to the max…
Smith is very good. A buy signal is generated when an index hits new lows while MACD and other breadthi indices do not confirm this weakness. Look again at the chart of the new low in the dollar. I think Smith will be correct longer term but the dollar looks to me like a multi month advance is in the cards. There are just to many bears in the dollar presently.
The dollar has dropped well below purchasing power parity against currencies where PPP has historically been similar.
It will rebound. In the meantime US exports of goods (what few we still make) and services should strengthen.
Hotels in foriegn tourist markets (NYC, California) may be an interesting play after lending woes batter the sector down. The US is practically a third-world-priced destination for Euro holders now.
I think the question to some of us is should we hold on to our homes. We bought in 2000, pre-bubble, saw some escalation of price, but fully accept that the value of our home may eventually go below what we paid. To us, the house was always a place to live, not an investment.
back to 2000 ? if that happens you’ll need ammo and canned food
You’ve seen all the arguments here, flat.
Any reason prices **wouldn’t** go back to pre-2001 levels (or more)?
Imagine locking in a 30 year fixed @ 7% on a $500k property, and watching the Dollar erode to the point where one might pay off the house in a few years
You’re assuming that you can see this coming before the bond markets do. I can assure you that if the global financial markets, most notably the Chinese, get the idea that the Fed is going to trash the dollar those 30 year fixed 7% mortgages will vaporize before you know it.
They’ve already been burned by the subprime meltdown and they’re not going to get burned again.
Like I said before, late 90s pricing in prime areas, four digit figures or less everywhere else. Granted the national economy would disintegrate but since it’s all fake I don’t care. Most of the housing isn’t even worth five digit figures when you consider all of the crappy construction work, the fraud, the high taxes, and all the other fun stuff that’s gone on during the last decade.
Good point, what is a poorly built house worth? IMO another price issue is houses built too expensively for local incomes (see Arkansas).
(See California to)…..Some idiot purchased a home in a $750,000. neighborhood near me, tore it apart, added on with all the bells & whistles and put it back on the market for 1.3 mil….He is going to get his butt handed to him….
Everyone’s worries regarding foreclouseres are over. There’s a new service that will bail married couples (with teen aged daughters) out!
Here’s what satisfied customers had to say:
“My mother thought I was getting ‘too frisky” and that I had to get married right away before I lost my purity to some high school boy. Marry Our Daughter found me a husband and my parents were able to keep their house and pay off my mother’s medical bills. I was so glad I could help them, and being married at my age (I’m 16 now) has a lot of advantages, like my own credit card!”
“At first we were worried that Janine was too young to get married, but then her new husband bought her a house and a car and jewelry and the money we got let us buy a house for ourselves. Getting out of the trailer park at our age was the best thing that ever happened to us, and it’s all thanks to Marry Our Daughter!”
http://www.marryourdaughter.com/
Is it for real? Beats me…..
Site registered in Scottsdale in 7/07 through a proxy. Daughter just reported it to the State of Arizona. Can’t be legal - marriage of minor girls for profit.
It seems to be a hoax, but even snopes.com isn’t sure.
Pure art project. If you look at the proposal form the give away is that they specify no personal information such as location, income, occupation. Think those things would be important? Religious affiliation? The replies will be ready to be strung together without much editing.
That has to be phoney, otherwise, it is right up there with NAMBLA crap. Who the hell would try to marry off their 14 1/2 year old daughter? Sick bastards.
Well polygamous Mormon fundamentalists, for example. Carrying on the proud traditions of Joseph Smith and Brigham Young in the year of our Lord 2007. Check out the backcountry of Utah and thereabouts.
marry our daughter or
marr your daughter?
I’m not going to buy a house until I can afford it - I want to pay cash or almost all cash. So, that means prices come down a lot more or I earn more money or both. I don’t want to be a debt slave and renting has a freedom to it that owning can never match.
“I don’t want to be a debt slave and renting has a freedom to it that owning can never match.”
If something breaks in our apartment I place a call and then go out to dinner with my wife. We come home and it’s fixed. That is a beautiful thing.
You’re SO right. And if you get a big bonus and decide you want to take a sabbatical in Jackson, Wyoming, and study buffalo behavior, you’re free to go. Or if you find a nicer place at less or the same. Or if you just get tired of that side of the street. Or if you have a kid and want a bigger place. Or if you decide to relocate to Greenland. Or if the place burns down. Or if you decide to rob a bank and want to get outta town fast. Or if you get divorced and wanna get outta town fast. Or if your inlaws are planning on moving in and you wanna get outta town fast. Or if the repo man’s looking for your car. Or if your neighbors are jerks. Or if the gangs move in. Or if you lose your job and you need to move to survive. Or if you need to join the witness protection program. Etc.
Wilderness Protection Program for me, thanks…
What they said.
In order to give up the freedom of renting, buying has to be a BETTER financial deal.
Gee, you guys must not own a lot of stuff.
you don’t own stuff, it owns you.
Agreed. The more stuff I get rid of, the better I feel.
The older I get, the more stuff I get rid of and the less stuff I buy.
Gee, you guys must not own a lot of stuff
most “stuff” that people own should go into a dumpster, imho
Just unloaded two boxes worth of “stuff” at Goodwill today.
Don’t miss it!
Don’t be a slave to your possessions.
I appreciate your approach, but will respectfully disagree. Prior to academia, I was in corporate finance. I appreciate leverage. If I can borrow at 5% and get a 7% return, it is free money. I could pay off our house today, but the tax benefits and the returns on our portfolio outstrip the 5.5% interest tag on the mortgage. That said, there is a lot to admire in someone that is debt free. I applaud you.
If you can get a 7% guaranteed (capital+income) return, then it is “free” money. Otherwise, it’s speculation with someone else’s money with your house on the line.
Debt free is a much better feeling than a 2% at risk return. What’s not to love about freedom? You can’t take your money with you.
Not to mention 2% is a lousy ROI. Doesn’t even beat “inflation” as calculated by the BLS, much less real inflation.
I’ll take my debt freedom and invest my ‘hard’ money as I see fit, thank you.
We are trying to sell a house right now. It’s amazing how much money is spent getting into, and out of, a “purchased” house.
So much maintenance, prop taxes, association fees (if any), etc. No way out if your life situation changes.
Quite frankly, the only reason we’d want to buy a house right now is if we get to build one exactly to our specifications (single-story, “green” & w/ water recycling, big lot, excellent construction materials, well-built & good layout).
It costs too much these days & there ought to be a premium on the freedom of renting, I agree.
Especially during this downturn in real estate, a borrower has the potential of getting a firesale price based on oversupply of homes ,foreclosures ,stress borrowers/speculators not able to afford the adjusted up payments or carrying costs .
You can just tell by how many people went on toxic loans with low down payments that the investment goals were short term .The whole industry was selling leverage/appreciation and easy underwriting with the idea of selling or refinancing down the road .
The type of loans people went on was a mass brainwashing event that took place on main street ,that was supplied by Wall Street .
Now borrowers are finding out what a tight money market is in which they are stuck with their toxic loan .
Price/Rent ratio is an unemotional tool. I like 120 times monthly rent in Calif. For example homes in my neighborhood are renting from $1250 to $1700 currently, they are about to decline so the $1250 is a good marker for me. Puts these homes in the $150K range. currently the same MODEL is offered from $365 to $535 they have recently started to sell in the $395 range, inventory is huge.
Next year the range will be $250 to 300K then down from there. Must be willing to wait if you really want to buy at the proper market price.
The problem with most buyers is that they have a dangerous fixation on price action. The key is the Price/median income and Price/Rent ratio. If you focus on these metrics you are unlikely to overpay, unless of course you listen to your local realtor’s sweet nothings and get carried away.
Lets all keep in mind the our fedaral & state tax structure in comparing rent vs. own….IMO, If that were to ever change in a significant way you could see a tremendous closure of the gap between rent & own particularly in high tax states…
Also note that the value of the Standard Deduction has been increasing and offsets a large chunk of what modest-income earners would have thought to be a windfall mortgage interest deduction.
The current differential between mortgage payments (+ taxes, maintenance, insurance) and rents more than makes up for any possible Sched A interest deductability (which people usually overestimate the value of anyway).
Excellent points re: factoring in the STD deductions vs. Shedule-A MIDs. Another thing that frequently gets overlooked by the “new math” is the AMT. AMT is set to reduce or eliminate the MIDs for a large % of homedebtors unless Congress chooses to act.
Lineup, I’m setting out right now to look at 3 bd rentals in my area (LA 90024). Decent SFH leases have asking prices from $3,600 for a small one to $4,900 for a larger home. That would mean those houses should go roughly for somewhere between 400K to 620K, right? Wrong. No house here goes for under 1M. So, going back to the question of what would be a signal for us to buy, I’d say that prices have a long way to go with regard to rents. Also, with all the mortgage turmoil going on, I’m beginning to think that I would only take the plunge if I could finance most of the mortgage with a conforming loan. Let’s see, I get a loan of 417K, put down 20%, and voila, I bought a home worth around 500K. But wait, that means that prices in my area should drop 50%, so I’m back to where I started with rent-to-own ratios. Oh, well, I’ll just go out looking for a bigger rental…
Anyone know what the historical average price/rent ratio should be for Phoenix?
‘Buyers read about how terrible the market is; sellers don’t want to budge because they’re reading that prices aren’t falling.’”
How is it possible to read the same articles and come up with two completely differing conclusions ? Is the NAR talking out of both sides of it’s mouth now ?
It’s called groupthink and I think it is doubleplusungood.
I gree with you.
Buyers aren’t buying, because they want lower prices; they are housed nonetheless. If they are renting their rents are fair, otherwise they would buy.
Sellers aren’t selling, because they want yesterday’s prices; they are feeding ever-hungrier alligators and losing net worth by the month.
No renter if forced to buy; many sellers will be forced to sell. So the direction of prices is a foregone conclusion — I think all that is unknown is the velocity.
If the FED does cut rates in a aggressive fashion the money would not flow into RE. Look to the stock market, commodities such as food, energy, and big cap stocks that pay a dividend. RE will be a black sheep for many years both RI and commerical.
Not commercial unless the economy tanks….Lower interest rates other than the general health of the economy directly effects commercial….Commercial, for the most part, is a emotionless purchase…Its all about real & anticipated rates of return IMO….
Hate to disagree scdave, just read a article in Bloomberg or Forbes that commercial should drop in value 10 to 15% next year. First residential and then commercial always. There’s trash in the CMBS’s as well.
commercial is cracking now- even in the DC (central soviet) where the spend your money
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I would say, “look to” Japan. Money will be sitting idle in banks all the way to 0% rate.
As Ben has pointed out Fed would cut rate because the economy is in a recession and stocks are not going to attract buying. There will be incessant selling if the stock prices remain high.
Jas
rate cut provides exit stratgey for blue blood monies to hit the P T Barnum Egress.
It is time to buy when owning is cheaper than renting. I think we’ll get there by the time the dust settles.
PS. I’m not sure buying a condo is EVER wise unless you go into it assuming that it will depreciate to zero worth with high maintenance costs, like a used car. You don’t own any land, so there’s no fundamental basis for appreciation, and it’s not like they aren’t building any more condos.
I am/was thinking of getting a condo. still am. If the expenses on a condo are less than my current rent, I’m ahead. I dont see that happening. Also, if i can rent a condo for more than the mothly expenses, im good.
Condos provide shelter at a locked-in monthly cost, unlike renting.
I plan on buying at least a condo later this decade.
How is condo monthly cost “locked in”?
All it takes is one special assessment to cover an emergency situation.
It happened in my former condo building right after I sold — a huge plumbing issue that involved digging up the living room in one of the ground units. Because the issue was with a common element, the entire building had to eat the cost of re-flooring the garden unit.
I am going to buy when you can put down 0% and equal rent. Of course this be at a time when you cannot put 0% (like now) but the actual “worth” in a house is the rental value. All the rest is noise.
Shiller recently said the Nation can expect 50% declines, so here in Florida I’m expecting an overshoot to 70% in 2-5 years. That’ll be motivation, and just about right because we’re still up 159% from 1998.
But I’ll still be thinking about the freedom I’ve been enjoying as a renter (sold 1/1 condo Aug 06) and I’ll keep those 10-15 year decline predictions in the back of my head.
But 70% off would be tempting.
I think that Shiller said some areas will see a 50% decline, not the nation as a whole. He is prediction 20-25% decline for the nation as a whole.
I agree with you that FL should see a 70% decline. And so would California. Back to 1996-98 prices is a very likely outcome.
Jas
A time to buy? Numerous banks in your area run by the FDIC. Sue the broker, mortgage broker, bank, appraiser, tax appraiser, the rating agencies, Trump, and any one with a pulse. A leftist US government in power.
quoi?
One of the surprises to follow the bust might be the number of “holdover” renters who, having seen how easy life is when you’re not an owner, decide to continue renting indefinitely. It won’t be enough to make a cover story, but might be noticeable and would be a natural result of the law of unintended consequences.
posting comment: “Buyers may even personally write a letter to the sellers to make their point, as they did when the market was hot and they aimed to stand out from the crowd, Gaylord said . . . ”
Is anyone else beside me sick of reading this azzholes plea for buyers to write a letter to buyers with reasons to lower the price?? I’ll be gol’danged if I am going to BEG someone, in any form or fashion, to sell me a house. No way, no how !
I have yet to see any realtors urging SELLERS to write letters for buyers to review. Oh wait, that might be the sales sheet w/info on it. So, add a commentary section from the buyer w/a strong story of how their house should be the one to buy.
Effin realtors. I despise them now more than used car salesmen. And that takes a lot of doing.
A realtor is nothing but a used house salesman.
Come to think of it, why are buyers and sellers in the position of exchanging little notes, in the first place? Because the realtors control the negotiations (including the flow of information) to their own advantage. One wonders if this “correction” wouldn’t happen quicker if the realtors weren’t gumming up the works.
Dear FB, Mr. Gaylord (love that name) has recommended I write you a letter, so here it is. Mr. Gaylord is a Horse’s A#@. You get on your knees now and accept my very lowball offer. Take, or leave it stupid seller idiot.
http://lasvegassun.com/sunbin/stories/sun/2007/sep/08/566640424.html
Got this from the “Bakersfield Bubble”. Read if you don’t like Realtors.
if you don’t like Realtors.
That would probably apply to 99.9% of bloggers here.
This is how we negotiated the price for our current house (purchased in 2003) in Santa Clara:
This is our offer ($25,000 less than the asking price) which will be reduced by $10,000 in each counter offer.
We bought the house for the amount of our original offer which was $5000 less than the seller paid for it in 2003. We successfully had the property tax assessment reduced by $5000 after we closed the deal.
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When prices for the last six months are up 20%+ from the same period a year ago. This way you avoid lots of false signals for the bottom.
Jas
You’ll avoid lots of false signals and probably never buy a home. 20% YOY appreciation is extremely rare. Looking backwards, I think the only time your criteria would’ve been met was 2004/5, which wasn’t the best time to buy a house.
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I apologize. I meant 20%+ from the bottom, that stays for six months.
Jas
Having owned a pair of single family detached houses over the past 25 years, I am now divorced and an empty nester.
As an amateur historian, I believe we are living in unprecedented times. Doubter simply need to note how often the word hyperinflation is now batted about in various commentaries on this blog.
Not for instant do I believe the United States is the premier place for permanent residency. According to a Worldwide Governance report noted in this week’s Time Magazine we now rank 35th in personal freedoms, down from 22nd place last year.
My era of blind alligence is over.
As socio-political events unfold for a foreign oil addicted country, which is now the world’s largest debtor and with future internal entitlement liabilities estimated at $53 trillion dollars, I am a firm believer that instant mobility is the greatest asset a person can have at the moment.
Extraneous to perhaps a yert (personal property) situated on a couple acres for weekend relaxation and diversion, I doubt I shall ever render myself become a property tax slave ever again.
The myriad ways the PTB come up with to tax people (witness the rain tax mentioned yest.), I’m with you. A yurt isn’t a permanent structure, so couldn’t be taxed. Another thought is to buy land with ag zoning and build an ag building (w/ living quarters inside), as ag buildings usually don’t command much if any taxes. The yurt thing is catching on BIG in little towns in Colorado where there’s no affordable houseing. The town of Ridgway (bedroom comm. for Telluride) is struggling with a yurt explosion and how to deal with it.
Sad but true commentary HD…..I am feeling like I do not recognize my country anymore….Kind of depressing…
RE: The town of Ridgway (bedroom comm. for Telluride) is struggling with a yurt explosion and how to deal with it.
No kidding LiT? First I’d heard the things were goin’ mainstream.
What a hoot!
MSM must be keeping a lid on that story, LOL! Talk about affordable housing
WTF-Mongolian nomads been livin’ in the things for thousands of years. They gotta work.
The assessor’s must be going BS!
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Thanks. That makes me less of an America-basher.
The sad thing is that the Propaganda Machine is all-powerful and it can make anything acceptable as long as it is done slowly — frog in a pan and turning the heat up s-l-o-w-l-y, a relatively peaceful death.
The same folks gave us the Housing Bubble wrapped in the flag (“American Dream”).
Jas
“Doubter simply need to note how often the word hyperinflation is now batted about in various commentaries on this blog.”
I’ve been hearing this song for at least 30 years. It is usually sung by folks who think that buying shiny metal and burying it in the back yard is a rational investment strategy.
I’m so bored waiting for Armageddon.
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I am a deflationist and yet I have been recommending 5-10% in gold as an INSURANCE against the breakdown of the paper currency regime. Insurance is a cost and not meant for gains.
Jas
Jas — that has been exactly my strategy, for exactly that reason — “term” insurance only n– the hedge. I hope for deflation, however, and don’t mind losing on the metals because the gain on everything else would be so great.
RE: I’m so bored waiting for Armageddon.
Armegeddon can come in various ways.
Illness, divorce, death of a child, business failure, IRS levy, et. el.
For for me it happened when my -ex wife of 28 years started screwin’ around with a guy at a new job. LMFAO…Ya think ya know somebody after all that time!
I went from believin’ that this kinda shit always happened to another guy to a divorce statistic in short order.
But good can come from Armeggedon. I played by the rules all my life and got it all stuck right up my azz.
Now I just smell the roses live the day.
FTW
Much better way to live.
I believe we are in unprecedented times as well. I am also an empty nester, raised four and they are on their path, single dad after the manic spending spouse ran off into the sunset. I pushed the stone uphill for 32 years and am on a different track. I also love the US but do not recognize it as the place my dad went to Iwo to defend.
I live on a boat for most of the year and rent a small farmhouse to keep my toys out of the rain and live there in the winter. I could buy a “house” but am very reluctant to be chained to mainline revenue stream taxation for the rest of my days. A small piece of Ag land with an unconventional shelter and a garden would suit me fine unless there is a revolution in the tax and govern system.
In the long run friends, gold & silver are not investments or hedges. They are an inactive store of wealth. Some coins may prove to be insurance against chaotic times.
Anyway, I think the “time to buy” might be at a place lower than most here express. The 50% reduction you seek to get to 3X local income may be adjusted when local income drops by 50% due to business failures. Local income is already dropping as banks and builders reduce staff. If the leveraged investment world implodes after the leveraged realestate world, those imaginary dollars in virtual accounts (like my 401K) will dissolve and the average rich person will have less of them (the average average person doesn’t have much to loose). That equals lower prices for everything (except government).
If you are looking for a 25 or 50% drop in one of these factors, consider what the effect will be if two or three factors work together.
JMO
It will certainly be interesting.
Here in San Jose we’ve allowed developers to have their way and convert some really horrible industrial sites into beehive condo projects. These wil be foreclosure central IMHO. And I love the attitudes, “Jobs ? We don’t need no stinkin Jobs !”
http://www.mercurynews.com/ci_6843935?nclick_check=1#recent_comm
Looks like another “Shea” sh$t box Mo….Just like the stuff right next to elmwood correctional facility…What a view !!!!
In Florida it is not just over-priced houses, but the wind-storm insurance and the tax increases (on second homes) that have made Florida more desparate. I’m looking on Sanibel Island where there seem to be about 20% of the existing homes on the market (an island with only a few thousand homes). Virtually all of these homes are vacation homes. Key West-style homes within 1/2 mile from the beach are listing at $700K+ but were once all listed over $900k. I’m waiting until next summer/fall to grab something in the $400-$500K range.
“Also, not all hope is lost even if a seller doesn’t bite immediately. Sometimes after time elapses, the seller comes around and decides to negotiate’
- If you can’t walk away from a deal after your offer is refused - you can’t negotiate. Whenever I consider purchasing anything used, I usually make contact, inspect item, keep phone number and wait for ad to expire. If it did not sell, then I am free to negotiate as low a price as I want.
My indicator? When the Mother in law (MIL) stops pushing us to buy as a status symbol (for her). Then I’ll know the masses understand prices can go down. Then I’ll be able to negotiate for a fair price.
Oh, a have half a dozen coworkers that are also excellent counter-indicators. They were the ones to yell the loudest “buy now or be priced out forever.”
Got popcorn and patience?
Neil
LOL - my MIL, as I’ve mentioned ad nausem (sorry folks - she has a very strong personality), is our excellent contraian indicator. The time to buy a house will be when we mention to possibility and they warn us about how houses always lose money. Once my MIL is a buying frenzy to acquire as much gold as possible, it’ll be time to sell.;)
We might buy a house when the economics swing the way they are supposed to. What’s the point of owning the building if it doesn’t cost less than having a landlord come fix your problems? Owning has to be significantly cheaper than renting for it to make sense. This whole monthly payment is less than owning + someone else worries about maintenance, taxes, and the lion’s share of the insurance is sweet.
We’ve owned for most of our adult lives: our 10th anniversary is this October and we purchased in the July before our wedding. (Rented only 1 year before purchasing…) A lot of our time and money for the last decade has been tied up in paying down principal and fixing up a very neglected house.
To give you some idea of how much work our house required - moving into a maintained but not remodeled 3 bedroom apartment in a building of 60’s vintage was a upgrade in our standard of living.
Renting to me is sweet freedom - no ?%$$@ lawns, pipes to be worried about, ceilings to be replaced, electrical systems to be upgraded and replaced. Something’s broke? Call the landlord. Heaven.
And hey - do we want to move south to see if my husband can get a better job? No problem - lease is only a year. What if he gets a new job locally but now the commute is longer? No problem - move closer to his work.
We now have access to all the money we dumped into the house plus a “bubble premum” earning interest for *us*. We are debt-free with money in the bank. I can make choices about employment and so can my husband. Ah - that’s sweet…
So yeah, I could keep renting for a long time. Many thanks to Ben and the posters in this blog. It took a while to shake the “must own” mindset. Ben, you have a long overdue donation coming your way.
Sorry if this ends up a double post - looks like my orginal got munched.
LOL - my MIL is also our contrarian indicator. When she warns us against buying a house, it’ll be time to buy. Likewise, when she’s in a gold buying frenzy because it “only goes up”, we’ll consider selling.
We may own again when the economic fundamentals make sense. What’s the point of owning the building if it’s not significantly cheaper than renting? This whole monthly rent is cheaper than owning *and* someone else worries about maintenance, taxes, and the lion’s share of insurance is sweet.
Our 10th anniversary is coming this October. We’ve owned for most of our adult lives (we bought the July before we were married and only spent 1 year renting…) In that decade, we’ve poured a lot of time and money into fixing our fixer-upper house.
Renting is sweet freedom - no *(@(#* lawn to mow, ceilings to tear down and repair, no pipes freezing, no electrical system to replace and upgrade. To give you some idea how much work our house required, moving to a 3 bedroom apartment, maintained but not remodeled, in a 60’s vintage building was an improvement to our standard of living.
Now we are debt free, with access to the money of a decade of saving (plus a bubble premimum), with more time and choices. Why did I want to own again????
Many thanks to Ben and the posters here. It took me a while to get out of the “must own” mindset. Ben, you should have a long overdue donation in your email. Thanks all…
Agreed Vermonter. That embarassment about renting thing is just a bunch of hogwash. I can afford a home in our neighborhood right now, even though they are all overpriced. Meanwhile there are tons of people who bought in my hood who are scared sh*tless about having to give the home back because they are upside down and can’t cover the payments. Almost every real estate agent I talk to mentions the sellers are extremely motivated and will go well below the asking price “just please submit an offer”. LOL
Chris,
Fight on!
I 100% agree with you and Vermonter. What is it with status and buying? Quite bluntly, unless a “homeowner” can get out within the next 90 days, I have far more cash sitting is safe CD’s than their equity.
(And yes, I fully realize most are already under water!)
I too thank Ben and the posters here. My understanding of the bubble has grown tremendously over the last year. Thanks everyone!
Got popcorn?
Neil
That embarassment about renting thing is just a bunch of hogwash.
If you can resist the many ways that society and advertising attempts to manipulate you through social embarrassment, then you’re improving your odds of financial viability.
People throw away vast sums of money in the vain pursuit of social status, buying things they don’t need to impress people they don’t know, and in many cases don’t even like.
Too many examples to list — buying instead of renting your residence at less cost; getting more house than you need; SUVs for commuting when a car will do; gotta have the cool new vehicle on TV when old one is perfectly functional; big screen TVs for tiny rooms; boats/snowmobiles/jet skis/RVs, etc.
Buy stuff which suits the function you need it for, at a reasonable cost. If you’re buying it primarily with thoughts of impressing someone, it’s probably not worth it.
I care what my friends and family think, but my friends don’t base their respect for me on the perceived social status of my car, house, clothing brands, etc.
The stuff you own ends up owning you.
Resisting being manipulated by the empty pursuit of social status is a major step toward financial and personal sanity.
Chris, same thing for me. I can buy in my neighborhood. I listened to some FB at the neighborhood LA Fitness talking to someone about how he’s stuck in his house and how it was the biggest mistake of his life to buy it. Of course, I keep my comments to myself. I don’t want to rub their faces in the dirt. Happy to be renting!
My wife and I owned homes from 1973 until Aug.2004 when we moved to Monterey Co. Couldn’t believe what was going on and how people could buy what they were buying and was even told by the relocation RE not to bother her unless we were prepared to outbid another bidder. Now every two weeks I get a postcard from her wanting me to buy. I do owe her a card thanking her for cementing me into a solid renter mode. While my wife and I could afford to purchase a $500k, our limit is fixed solidly at a $300k limit, and that limit means the house does not need one iota of repairs (even at $200k). Price is just one constraint on buying however, the main will certainly be location and construction. Taxes and assessments will also figure into the equation. If I could find a place to live that I enjoyed and that I could rent for $2000/mo.(including utilities) for the next 10 yrs. I’d do it in a heart beat for the freedom to be able to move at will in the future while watching my savings grow. Yes there is security in knowing that with a fixed mortgage you have a form of rent control, but at the same time I see devastation brought on by nature (floods, hurricanes, tornadoes,hail, fires, ghetolization, etc) and see that there is a false sense of security.
Kudos! Big time!
Don’t you love being begged by a RE agent? It is fun to say “no” to someone that tried to convince you to outbid some moron.
the new black will be how many RE agents you have begging you to buy…
“with a fixed mortgage you have a form of rent control”
I live in a rent-stabilized apt. on the West Side of Manhattan. Stabilization rules, set by the city, are less stringent than rent control, but the city does set the increases in rent. Since the protection expires when your rent reaches 2k, tens of thousands of apts. have been unwound from the program, and are at market rent. This is a nice street in the 80s on Riverside Park, and only 4 apts. in my building are still stabilized. When 1 bedrooms on my street, sans doorman,starting selling for 700k and up, I went to look at a few…and I would not have wanted to even rent them. OK, but nothing special. And all around me, everybody was buying, tiny studios going for for 500k. I make comfortable money, and I live well, but nothing like real NY money. I did figure that everyone was making a lot more to go for these prices…only when I started reading HBB did I realize how nuts lending had become…and how easily people were signing up for monstrous debt. I guess I’m good here for another 5-6 years, but if things change, they change. I live debt free, mainly because it feels simple and clean to me.
Amen!
I was digging through some old papers and found a real estate flier I picked up here in Phoenix in May of 2001. 4 Bed, 2 bath, 2 car garage with heated pool –> Asking $129,900. Sold a few months later for $127,900. I have the flier tacked to my wall.
When houses in that area are back down to those levels, it’s time to buy!
(they now sell for $240k from a high of 290k as of July 2005)
Time frame? Who knows? Time is irrelevant to me as I always find a cheap place to share rent with my bro.
O/T
Great screen name. Awesome movie, if for no other reason that it’s an excuse to look at Rae Dawn Chong.
I would like to buy in los angeles, but I wouldn’t consider doing that for at least 3-5 years. It depends on how fast prices fall. During the last cycle it took about 7 years for LA prices to bottom and we are only a year or two from the peak, depending on the area of LA.
I would also want to buy a house or condo that I would want to be in for the next 5-10 years. Even if prices are flat, I would still have to factor in 6% commission when I sell.
I would want rent to not be much higher than the cost to own. Again, unless it were years from now, appreciation would not make up for the difference between owning and renting costs.
I would also wait a few years because if we had a recession soon, I would expect prices to fall even more.
So I could only guess what price I would buy at. My guess would be for what you could get for 600k in 2005 or 2006, 400k would be a minimum bottom price. My reasoning for this is what prices were just a few years before. The last 2 years of 25% appreciation should be erased for sure. This was fulled by easy loans and speculation. A lot of people bought at the peak with interest only ARMs and hoped for appreciation, which didn’t happen. A 35% drop would erase that. That would be a minimum expected price drop. My guess is that there could be more than that.
Then I would look at affordability. There would have to be a close correlation with what was affordable during the previous bottom. If a similar amount of the population in LA during the last bottom could afford homes, then it would be a good time to buy.
“Then I would look at affordability…”
Just be sure you use a constant index! The CAR magically made everything in CA more affordable in 2006 by changing the index to use 10% down (instead of 20%) and some funny-money loan (instead of a 30-year fixed).
A buy signal will be when house prices have bottomed-out and stayed flat for 2(?) years. The time to buy would occur when the prices had flattened and interest rates were high (8, 9, or 10%). The high interest rate will ensure the sellers (new homes) have cut there acceptable profit margin enough to generate some sales, even in the face of high interest rates. This would be the time to buy a new house, given an economy that remains intact and is not in the process of crashing into a major recession. If we are in a major recession, then the best buys would occur when sales of all houses (new and otherwise) had ground to a halt. The best buys would be from very distresses people. I plan to re-enter the housing market at some point. I will be glad if that happens as soon as 4 years from now, but I would more realistically expect it to be 6 to 11 years from now. I like living in our own house. Presently we are renting. I just don’t want to get burned and loose money unnecessarily.
“‘There’s a danger of them taking it too personally,’ said Jon Boyd, president of the National Association of Exclusive Buyer Agents.
This is why you should never treat your primary residence as an “investment.” Nor is it a piggy bank. Your home is a place to live - period.
A good friend once told me “never get emotionally attached to your investments.” Unfortunately, most people are emotional about their homes. “My house is unique - it is worth so much more than all the other ones just like it.” That’s a major reason why prices will be sticky on the downside.
Nope, you should always treat your primary residence as an investment. Because a having a place to live has a market value. It’s called “rent equivalent”.
It’s the P/E, stupid. If it’s too high - like over 10 - don’t buy.
Renting vs. Owning has personal variables to it. We are getting older, and can pay cash, so we will buy in the next year or two, so we can plan for retirement. Having a paid off home (a reasonable price paid for it) can make your later years easier to deal with. Inflation will knock the socks off purchasing power, so owning outright is smart for us. Our investments will still be growing.
Of course we will do our analysis, and be smart about things. Nothing beats the security of a paid off home in your retirement. Sh*t happens. My father has Parkinson’s. Talk about a Black Swan!
“Nothing beats the security of a paid off home in your retirement.”
It’s funny how that used to be the goal most people had. Mortgage burning parties seem like a quaint old custom now.
I think that strategy will become even more important in the coming decades. As the the baby boomer’s start retiring, SS and Medicare will get stretched to the breaking point. A low cost of living, from a payed off house, may prove to be crucial.
(In the best Ed McMahon intro voice) And heeeeere’s the Reverse Mortgage Vulture!
Low overhead provides financial security cheaply.
I have to side with Ben. It’s way too early to buy. I live in SF and just in the span of 2 months - 1 bdr condos have dropped from $499+ down to the $325 - $350 range for many listings. When the IO reset peaks in Summer 2008 I might reconsder…the price will be right, financing will be the issue… 20% down is going to catch alot of interested buyers. Plus the condo fees, arbitrarily set often cost $600/month. No thanks. Side note, pricing seems to be still very high in some very shady neighborhoods in SF - Bayview and similar areas. The crime rate is a dirty little secret at city hall. I genuinely feel bad for those fools who paid dearly for such a seriously dangerous area. NO way out for them. Gangs will be squatting in them and then there is no hope for this blighted area.
A buy signal? When it makes sense economically. That will depend on the price of the home, and our income (and future outlook) at the time. When that makes sense we will probably pull the trigger, although I want to buy as little as possible to keep the downside (in absolute dollars) to a minimum.
I think we are headed/already in the Japan experience. 15 years of falling prices are ahead of us. The Bubble Boomer ponzi/pyramid money needs to be washed out. So my income needs to be rock solid and the potential downside, in dollars, must be limited.
Otherwise we rent.
RE: I think we are headed/already in the Japan experience. 15 years of falling prices are ahead of us. The Bubble Boomer ponzi/pyramid money needs to be washed out
Sums it all up pretty well, IMO, JM.
I do not plan to leave Miami, and we are looking for a house there, in some nice neighbourhood in or around Coral Gables.
The prices there were going up 25-35% a year in 2002-2005, and only recently started to go down (5% down from Dec. 2006 peak, according to Case-Shiller).
Unfortunately, I don’t think the decline will be as fast as the upswing. But I do hope that by Dec. 2008 the prices will be further 15% down, perhaps even 20% (wishful thinking?). Then I will look whtether the monetary picture points to inflation or deflation, and decide whether to buy.
I will be paying cash for the house, and I am afraid that the fed action will generate inflation, which will destroy real value of many asset classes. It will not be easy to preserve capital in the next 12-18 months, I am afraid.
Since housing costs are proportional to median income, and wages are stagnant, saving dollars to buy a house in the US in a few years seems like a very safe play to me.
Of course, this is all a very convenient argument for me, as aside from buying some gold, there (IMHO) really have not been any good asset classes this year at all, unless you are a skilled day trader like txchick. ^_^ I have a day job, so … no.
When to buy again? Unlike some of the younger renters here, my wife and I owned for over 10 years, and it was a struggle for me to convince her to sell in early ‘06, and it’s been a struggle for me most of this year to convince her that now is a tragically bad time to buy.
I’ve won her over for the time being (we’re just signing another lease) but I know that she’s not going to go for following the market down to the bottom.
For us, another 15-20% drop from current asking, and this particular marriage won’t be able to resist getting in. We’ll make our 100% cash offer, be mortgage-less forever, and be content.
I’ll buy when it’s cheaper than renting.
I agree, at least around the same price, give or take a tax break or two. here in San Diego, that still requires a full 40% correction over current asking prices. I hear when prices are below this asking price or that, but the rent ratio is a very good one indeed, and takes all the emotions out of the equation. After that I don’t really care if prices go up or down, although I do like the freedom I have to up and move if the job sitch changes in the near term.
I’ve been just reading for a while but feel compelled to chime in. For my wife and I, the buy signals aren’t even on the radar yet. We’re looking for a lot more carnage…
Here’s the short version. We’re in our late twenties, one (infant) child, well-educated professionals (JD and MBA), zero debt, 200k in retirement accounts, and 20% of my take-home income going to savings. More importantly, she’s been out of the workforce since the beginning of the year to raise our son. Her return will more than double our cash flow.
So, what will make us stop renting and buy our first home? Simple – we won’t stand for being ripped off. We won’t pay a quarter-million for a townhouse built on fill with the cheapest materials and sub-par construction, and we definitely won’t pay a half-million for new construction on a postage-stamp lot in a subdivision where population density approaches that of an average city. Screw “the market,” the property just isn’t worth that much.
A friend tells me about his plans to buy in NYC: just under a million dollars for a nondescript unit in a nondescript building. A rathole, quite frankly. I see that same million and think ranch, orchard, barn… and with money left-over in our largely undeveloped country.
So to the developers, owners, and speculators who think it’s reasonable to ask $50k for a quarter-acre lot, or $500k for $250k in materials and labor on the same parcel, know this: We’re no dummies. You’ve run out of suckers to hoodwink (folks who were sub-prime borrowers for a reason), and now it’s our turn to bleed you dry. In the most desperate hour of the most desperate day, when your business is wiped out and you stand to lose the very shirt off your back, we’ll appear with cash in one hand and a list of demands in the other.
What Do I Consider a Buy Signal? When the last “investors” throw up their hands and call it quits, those of us who want a home to live in will begin to assemble our estates.
Ditto
Question for the NoVA crowd:
My son, d-i-l and grandkids may be relocated, ending up around Manassas, VA. I learned this yesterday. So,
1. Can people provide suggestions for good locations to look for housing ?
2. Locations to avoid?
3. What is thre typical median home price in good locations?
I want to use this information to help them compute cost of living differential. Note: They plan on renting for a period of time after they get there, not buying, but they are looking to compare today’s housing prices for the purpose of looking at overall cost differences.
Help appreciated. Thank you.
1. Not Manassas
2. Manassas
3. Too high
ROFLMAO!!
The only good part of Manassas is the part near the train station with the streets with tree names, like Maple St or whatever. The rest of the town is inhabited by Mexicans on welfare. I wouldn’t ordinarily say something like that, but I worked in PWC government seven years ago, and it’s the truth.
Also, nobody lives in Manassas Park, so don’t bother.
All of PWC is an ugly s***hole, so sorry …
They could move to West Falls Church, which is quite nice, and take the Manassas MetroDirect bus from WFC to Manassas Mon-Fri. MUCH BETTER THAN LIVING IN PWC, trust me.
http://www.prtctransit.org/omniride/metrodirect.php
I used to commute from Alexandria, VA (which is in FFX) to Woodbridge (in PWC) using the Metro Blue Line and the MetroDirect from Franconia-Springfield to the Potomac Mills Mall.
Manassas is in Prince William County - So so schools. Lots of illegal Latins. Though they might leave with the collapse of the building bubble. Maybe your family could rent in Fairfax County and have a reverse commute. Just a thought.
The Latinos were there before the housing bubble. Also big in Arlington, VA.
I really don’t know why. VA is very Republican, of the I’ve got mine now screw you variety, so how they got into this situation is a good question.
Thanks, Anon and NOVAwatcher.
Fairfax sound like the best bet.
Just to reinforce my opinion of Manassas:
I used to drive from Loudoun to Manassas to get to the Ikea in Springfield. True, along that drive, you might find a small section that is very nice, but you’ll also be truly shocked at some of the poverty you’ll see. I’m talking a time-warp back to Appalachia of the 1930’s. Houses with tarps for roofs, with old tires thrown on the tarps to hold them down.
“Danielle Kennedy, a real estate sales coach based in Pacific Palisades, advises sellers not to think of a low offer as an insult but as ‘a sign of interest.’”
I’ve been all over the world and one area in which my countrymen and women will have to improve on, is the art of haggling.
We really have no experience in it, aside from buying cars and houses.
In my experience Asians are the best hagglers i’ve seen, they’ll dicker on anything…
http://www.thestreet.com/s/foreclosure-tax-is-next-mortgage-crisis/funds/taxes/10378543.html?puc=_tsccom&
I can’t help thinking that at some point the NAR will begin to issue statements similiar to “We expect home prices to continue falling for the foreseeable future and do not expect a bottom for years to come.”
Then I’ll know its time to buy a house.
See No. 2, 4 and 5. If you ever needed a reason to vote against Hillary, here it is.
http://www.thestreet.com/s/american-dreams-harsh-new-reality/newsanalysis/businessinsurance/10378306.html?puc=_tscana&
Unless the law is changed to allow W to run for a third term, or Larry Craig is fielded as the Republican candidate, I am nearly certain that I will vote against Candidate Hillary.
Credits to the buyer of a home for removal of granite and/or travertine.
An unwinding of a good amount of the fraud that has been perpetrated, with actual prosecution.
I’ve said before that I would consider buying again only when buyers are using their savings and verified income in qualifying for financing. Prices would have to follow.
I’d be looking at 120-130x rent or monthly costs somewhat around what I’m paying in rent at that point.
Yeah, I’m going to be renting for awhile.
I can wait.
Sorry, this was the link I meant to post. See 2, 4 and 5
http://www.thestreet.com/_rms/s/kass-g-phone-and-other-street-chatter/markets/activetraderupdate/10378095.html
TXchick,
great link. I especially like the 25b bailout planned by Rubin, among others…once again, big gov. run by and for the corporate masters.
I have pinned my hopes on the S. Carolina primary to trash Hilbil…I’m counting on those vets and good ol boys to show up in droves to vote for anyone but her. But if they are all repubs, all hope may be lost. We need a real housecleaning, not more of the same.
This will get me off the fence, that’s for sure. I haven’t voted since I voted for Reagan but I will this time.
There are a couple of things I would be looking for. First, the price to income ratio would have to come down so that buying a house makes sense from an investment perspective. What will happen is you will look at neighborhoods you’ve looked at for years and you will say to yourself “Wow, that actually is cheap”. It’s like when I bought Cisco for $8.50 at the bottom of the bear market in stocks even though it had been at a ridiculous $70-80. At $8.50, I said to myself that this is actually very cheap and I plunged in.
Second, is that the prices will have to come back to 2001 levels at a minimum but probably back to 1999-2000 prices in some places. Bubbles, as a rule, make all investors who bought and held losers on paper for awhile. That’s just the way it works in all bubbles throughout history. If prices don’t retreat to those levels then it really wasn’t a bubble. But I think we can all agree that there was no way this was not a bubble so next stop 1999-2001 price levels.
ot - read business week - columns - jack and suzy welch who think there is nothing but opportunity right now wtf? maybe, but i want to see what happens next week w/markets.
‘But buyers who do ask for deep discounts still risk offending sellers to the point where they quash any deal. … Further, buyers need to effectively explain why the price of a home should be lower.’
Yep, we’re a long way from buying time yet.
At the very least, the arrogance needs to be replaced with GMTFON (”Get Me The F— Out Now!”)
As deb said here long ago, that time will be when it’s psychologically as hard to buy as it was not to in 2005.
Right. In the stock market, it’s called “bid wanted.” Usually those situations mark the bottom.
For instance the sale of the 20M shares of Disney stock by one of the Bass’s (Sidney?) right after 9/11
If the “Bid Wanted” scenario signals the bottom, you think the market is bottoming, cause the bid/ask is hard to come by on low volume stocks.
how times have changed
‘They should make every effort to be grateful that an offer has come in.’”
Buy signals:
1) We are 1-year+ into the next recession, the NBER has publicly announced we are in a recession, and the unemployment rate has gone up by 2 full percentage points or more.
2) Everyone is saying that real estate is a terrible investment.
3) Median home price to median income ratio for the local area has fallen by 50% or more off the 2005 bubble peak level.
4) Ratio of home prices to monthly rent of comparable property is on the 100-120 range.
I see the bottom coming when most of the current crop of homebuilders no longer exist. They will either be bankrupt or have been bought out in distress. For now, as they keep dumping more houses on the market, the supply will always be greater than the demand.
Another signal will be 6-12 months after the final tsunami of ARM resets ends.
So California house prices need to drop a serious 25% to be realistic to buyers. The newspaper is stating only 10% of population can enough afford to buy. When salaries don’t go up , outrageous house prices are totally out of reach. Sellers needs to “wake up”….lower your price or just take the house off the market and spare themselves the misery of not selling.
25% is not going to get it done…
Absoluetly mrincomestream. In order to get middleclass homes back in line with middleclass incomes, homes in So Ca need a 65% haircut. The price of a basic home is still absurd.
Exactly. At 50% off peak prices, things might start looking interesting — but you will still not be getting a “deal”.
Explain to seller why prices should be lower?
Ha! Don’t think so. If that’s the market, that’s the market, baby.
And feed my squirrels while you’re at it!
When I will buy:
When I can buy a building, renovate it, rent it out, and make a decent return on investment. I haven’t been able to do that since late 2002 / early 2003. There are lots of investors that own 2 to 4 family apartment buildings here in Jersey City that are cash flow negative. Sooner or later they are going to get bled to death. Stuffing the place full of Section 8 and deferring maintenance can only hold off the inevitable for so long.
The rent market sure has improved around here. Its no 1998, but it sure is a hell of a lot better than around 2002 when you had to fight to find tenants.
I like the “Packaged Foreclosures” idea. Sort of like buying adult magazines in wrapped packages of 3. The outside 2 are recognizable ones from 2 years ago. Who knows what the middle one is.
Jersey City did this back in the 90’s when selling tax liens. During the last bust, real estate value went down so low that the City couldn’t even sell tax and water liens. Nobody wanted the properties. So they packaged waterfront properties (which was still in demand) with stuff in the funky sections of the city. The goal was to force some redevelopment city wide. It was also done to allow some people to catch up on their debts (some buyers made deals where debtors could make payments to erase their liens).
The results were mixed. Some of the major buyers of the liens (i.e. Breen Capital) just let the properties in less desirable areas sit.
“What Do You Consider A Buy Signal?”
A giant hand coming down from the sky and hovering over a particular home along with a booming loud voice saying “BUY THIS ONE MY CHILD” would do the trick.
Otherwise FU.
I’m also watching inventories of homes for sale and foreclosure levels. As long as inventories are high their will be competition for buyers among sellers. As long as foreclosure levels are high, lenders will be tight with credit. I don’t see these factors easing off for a good couple years. In addition as long as I’m putting more money in the bank every month, by renting over owning, I’m in no hurry to buy.
Hey, here’s a signal to buy now! You can be a landlord and stick it to the renters who are holding out. Funny…if you drill down how the forbes article talks about all the fantastic opportunities to buy a rental…..AND THEY ARE ALL IN THE BUBBLE AREAS! What morons.
http://tinyurl.com/2wk6zw
Oh man. This place I have been renting was owned by a family trust 2 of the 4 years I have been living here. Reasonable rent and didn’t increase on every lease renewal.
Now the place was sold to a California apartment corporation. I knew what was coming next lease renewal time - sure enough - rent went up. Since then, the rent has gone up nearly $2,000 for the last two years I have lived here. To add insult to injury, the outside lighting is dark, there is literally garbage in the trees from when they worked on the roof, they rent to anyone (my area was pretty clean - now it is full of cigarette butts, beer cans, and beer bottles), people are doubling up in apartments to split the rent so the parking lot is full if I come home late at night.
Yay California property companies! So customer oriented in thier propaganda. These are some of the reasons why I f’in left California to begin with.
Needless to say, moving come next lease renewal.
Inventory is about to surge. Buy now or pay less later!
My own view on when I’ll see the right price to buy is relative — it is when prices revert to what they were in (pick your year). For me, ideal would be 1998 prices. Can’t say I wouldn’t get off the dime for a 2001 price, however, if it was a great place in the right location.
I think the value of this method, is that it takes into account the differences in how much the bubble inflated prices in different areas.
The rent ratios are the only other way I’d base a decision. 120x could do it for the right place, even 150x for Omigosh — but no more than that. Of course, I’m way older than the average poster here, and that makes a lot of difference. If I were still young, I’d hold out for 100-120x tops.
I think my personal “buy signal” will be when all the bubble-blogs close up shop and the mainstream media stops publishing stories about real estate bubbles and/or the aftermath. More confirmation signs that it’s getting to be buying time will be when get-rich-quick in real estate infomercials on late-night tv are extinct. It’ll be a well know fact that RE is a bad investment and that houses are for living in, not speculating. And mortgages will be difficult to obtain and require sitting through a financial inquisition.
But, yeah, the bubble blogs shutting down and the media shutting up will be the biggest signal for me to start looking around. When that happens we should be pretty close to the bottom. Until then I’ll continue renting and saving.
The problem is that the fed is going to throw a lot of money at this problem, probably triggering Carter era like inflation.
The natural response is going to be 12-15% interest rates.
Even if the price drops to $300-400k in the bay area (what the median income would actually support), at 14% interest you’re STILL looking at a $3500 a month mortgage.
14% can’t last forever. I’d rather buy at 14% rates than 5%.
“Carter era” inflation? Carter didn’t impose wage and price controls in a futile effort to stop inflation, nor did he try to get people to wear “Whip Inflation Now” buttons. Who did? What started the inflation in the first place?(hint: something that was over before Carter took office).
What Carter actually did was appoint Paul Volcker as Fed Chair. That really did stop inflation.
“Danielle Kennedy, a real estate sales coach based in Pacific Palisades, advises sellers not to think of a low offer as an insult but as ‘a sign of interest.’”
What would I consider a ‘buy signal’?. When a@@hole sellers start seeing lowball offers as OPPORTUNITIES …instead of “INSULTS”.
Two words: Soup Lines.
“Further, buyers need to effectively explain why the price of a home should be lower”
Really? OK, how about “this is all I’m willing to pay.” Will that do?
When my rent x 100 - 120 = wishing price in my neighborhood for a 3 bd 1.75 bth, 2 car garage on at least a 6000 sq/ft lot. I say my rent because there are many FBs out there right now trying to make their monthly nut with inflated wishing rents.
It’s real simple. Wait until there is panic in the market. That’s how I did it with the stock market bust in the late ’90’s and was a buyer in 2002. You can tell because there is no rational to pricing. Sellers are in a panic and there are no buyers. Just go in and make a low ball bid (or low limit order) and if you get it so much the better and if not, go to the next opportunity. We are not there yet in the housing market but the direction is positive for bottom fishers. This will get much better since at least in the stock market, 50% margin was a requirement. In housing, we have had no money down, interest only - negative equity over time and money back on signing.
I think the only sighn will be when FB’s will start to think ” REAL ESTATE IS ONLY GOING DOWN”…
buying signal:
An 800lb gorilla on the back of a white elephant watching two horny monkeys with a football chase a pig with lipstick.
When renting costs about the same or more than buying.
When renting cost more than buying, and rents look poised to rise because the economy is finally stabilizing after the recession/depression.
Job market should be stable & improving over time & there should be little/no threat of a continuation of the recession.
Also, one should look at the historical (pre-2001) price/rent and price/income ratios.
When will I buy? When housing is again affordable and we stop with this nonsense of crumbling, PoS Post-War shacks that don’t even have air-conditioning selling for 5+ times median salary for the area.
Why do I want to buy? Because I want a bit more room and some land to grow some trees, a garden, etc. That, and I am sick of living among the lowest of the lowlifes who rent in my area.
Problems: The Fed may very well hyperinflate, ruining my savings, rewarding the scumbags, and making everything unaffordable. Naturally, wages will not keep up with this inflation, so prepare for “Brazilification” of society. Similarly, spread of crime, poverty, and illegals is another big problem. I fear a future where any affordable real estate is either converted into Section 8 or is filled with a dozen illegals, while the only places worth living will be in gated communities where we are not invited.