Waiting for Prices to Plummet on Homes for Sale May Be a Mistake
If you’re looking at homes for sale and want to buy a home but are waiting around for better prices, you might want to rethink your strategy.
If you’re a market watcher, soaking up the information overload across news media and Internet websites, you’re probably overwhelmed with confusion by now. Is the housing market getting better? Is it getting worse? Was there really, when it gets down to it, a housing bubble collapse? And, if so, who popped it?
First, the quick answers. Yes, the housing bubble collapsed, and everybody had a hand in popping it: the government, the lenders, Realtors, Appraisers, the investors and the general public. Now the hard answers: it’s getting better – and worse.
The truth is that market predictors are all on the fence. With the ARRA (American Recovery and Reinvestment Act) giving first time homeowners some incentive to buy homes for sale, there has been a steady increase of sales. However, once the tax credit deadline hits at the end of this month, the numbers are once again expected to drop.
Again, though, it’s better and worse. While the housing market is still dropping in some areas, such as the southeast in Mississippi, Alabama and so forth, there are definitely some strong marketsin the country.
For instance, Boulder, Colorado holds 60% of the share of increasing home values. The average value is about $350,000, but there’s a limit in place on the amount of homes allowed in the area. In Binghamton, New York, the average value of a home is around $112,000. They also have a housing limit, which means a small supply, so prices probably aren’t going to plummet.
Just because this is a buyer’s market, doesn’t mean you’ll get the exact price you’re looking for. If you want to buy a home and you’re waiting around for the prices of homes to plummet into a “sweet deal,” make sure you don’t wait yourself into an expensive mistake.
Instead of checking market forecasts, potential homebuyers need to look at things the way we always should have. Do I want to buy a house? Can I afford one of the homes for salethe way things are now? By researching, crunching numbers and answering the important questions, you’ll find the sweetest deal you could ever have: a wonderful house you can afford.
If you’re looking for a place to call your own, I can help. Call me at 813-469-3163 or email me at Info@SweetHomeTampa.com for more information.
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Comments
And you are so right about the interest rates. The government is buying up Treasury bonds and mortgages with borrowed money to keep the interest rates artificially low, but they will not be able to do this for too long. As soon as it stops we will likely see a big spike in interest rates. So even if the home goes down in price another 5% - 10% and the interest rates just go up 1% they will find they may not qualify to buy the house at the lower price or their payment would be just about the same as if they bought it before. And of course nobody knows what the prices will do.
We all would love to buy homes at the lowest price and interest rates, but not one person can predict the market accurately.
I personally do not believe that anyone can tell what the market will do over the six months or the next year and even less so long term. Just look at the stock market and how on the business shows one person says this stock will go up 25% in the next year. But they will ask another expert what they think of the stock and they say they think it is a loser.
When I consult with my clients I find out what their goals are and what their intentions are. If they are looking at a home as a place to live for the next 20 years the concerns are much less than the person who is only going to live there for two years.
My point is that looking back to the 1980's I have seen many people including myself trying to time the market. It is almost impossible to do accurately. I have always used trends, inventory numbers and more to decide when is the right time to buy however I never try to time the bottom or the top of the market. My goal of course is to buy lower than the high prices and hopefully as close to the lowest as possible.
Housing market statistics are a lot more difficult to interpret than the stock market due to the fact that a home goes under contract and does not normally close for 30 - 60 days. Now with short sales and foreclosures it makes the statistics even tougher to interpret as properties can be under contract for 3 - 6 months while waiting for a lender decision, only to just go back on the market.
Now our statistics can be three months or more behind.
Often in real estate the market will change quickly while the media is still saying the market is going up or going down, but in reality it is doing quite differently.
Beside all this is who knows when the government will decide to stop keeping interest rates artificially low. What will they do with the first-time homebuyer tax credit? Will they expand it to more buyers? Will they raise the tax credit to $15,000? What other incentives might come our way? Will judges be able to reduce peoples mortgage balances? All are unknown.
In the Tampa area we have gone from a high of almost 26 months of inventory down to about 8 months. In some price ranges the inventory levels are lower and in some higher or much higher. In some neighborhoods prices have stabilized or even gone up slightly, while others are still declining quickly.
In the stock or housing market there will be buyers that are lucky and buy at the bottom of the market, while many will be at or close to the top and the vast majority will buy somewhere in between. Unfortunately, most people buy at the top of the market whether it be in stocks or housing. When everyone is buying and making money everyone wants in. When it sinks people drop out and most will not get back in the market until everyone is saying the market is heating up. A small percentage of the people buy at the lows. And of course those that look at homes as the market is declining can afford to buy a certain home. If they wait to long it could be sold, or the prices could start to recover. They were counting on a 10% decline but instead it loses 6% then comes back or maybe loses 1% then comes back. At the same time the interest rates increase and suddenly their dream home that was affordable based on their income is now a home they are not qualified for.
The decision on whether to buy now, wait for six months or a year is totally up to the buyer. Some will win and unfortunately many will lose. Of course that can be that they bought too early, too late or at just the right time. As a Realtor I can show my buyers where the market has been and where it is today. We can extend out in time and say if it follows the same trend then this will be the case in 3 months or whatever period, but must temper that with the fact that we do not know if the trend will be broken.
I am not sure what effect the first-time homebuyer tax credit had. I had several first-time buyers and upon asking questions of them about it, I found that all of them were buying because of the low prices. All said they would be buying even if there was no first-time buyer tax credit. They love the fact that they are getting it though and I am sure that there were some buyers that would not have bought without it. I just did not find that true with mine. They considered it as kind of a bonus but the prices are what got them to buy. I did have one buyer who bought a more expensive home based on getting the tax credit though. They felt that when they got it they could use it for furniture and other items they need for the home. I suggested that they keep to the less expensive home as their budget will really be stretched but they did not listen to me which is fine.
Take a look at the typical buyer's household income in Tampa. They still can't afford a lot of what is out there. I am looking for a house in South Tampa (in the 500k range) and the majority of the homes on the market are STILL SEVERELY OVERVALUED, and we are supposedly at the market bottom. The people who are buying many of these overpriced homes are the foreclosure stories of tomorrow. I feel sorry for them. They are uninformed. If you track the sales history of nearly any older home in Tampa, one that has sold many times between 1980 and 2009, you will see that we are still paying too much for houses compared to wages in this area. The price of these houses has tripled in that time, while I do not have to tell you that wages have not. I am talking about the many 1956 stucco unremodeled boxes that sold for 30k in 1974, 128k in 1991 and 450k in 2009. After all, if you tell anyone with half a brain that it's a "great time to buy" an un-remodeled, 1956, 1,700 sq foot stucco box in South Tampa for 450k, they would tell you that you are an idiot. Prices are still out of whack with wages.
FYI, you agents should be telling your sellers that if the house sits on the market more than a month, it's OVERPRICED. The houses that are priced accurately sell in weeks, some in days. If you are going to put your house on the market in order for it to gather dust, cobwebs and a bad reputation, it's a waste of everyone's time. Also, the more time they sit their overpriced house on the MLS, the more REOs and shorts come on the market to further depress the value of their overpriced house (as I am sure you know, every day there's a slew of new short sales!). I am one of those buyers who thinks that prices will drop some more. How much more I don't know. However, I am not on the fence. I am actively looking; the minute something I like hits the MLS, I am driving by it the next. But I am not willing to pay inflated prices. Even if I have to wait another year (I have already been looking for 1.5 years), I will wait to buy a house in a great neighborhood that is accurately priced.
I also disagree that people who are looking to live in the home 20 years have "fewer concerns." Just like you can never time the market (we agree there!), you never know what will happen either (even though I plan to be in the house 20 years, I could become severely ill, lose my job, etc.). And it's always best to expect the best and plan for the worst. Which means that overpaying for a home is a very big mistake.
Oh by the way, it's always better to buy low and have a higher interest rate than the other way around (less debt, cheaper taxes, etc.). But nice try.
Jeff, if someone making over $500,000 loses their home because their marginal tax rate goes up a few percentage points on any money they make above half a million dollars, they're doing an absolutely crappy job managing their finances, are too close to the redline as it is, and should not be in that home at all.
In some other areas prices have not come down so much and it may be better to wait and that is why we always say real estate is local. Even in the same town there can be one subdivision that has seen prices decline by 50% or more and the next is down 25%.
When I look at listings in the MLS 80% - 90% of all homes are overpriced in today's market or in any market. I ignore the ones that are overpriced. Not all of my clients take my opinion that many of the homes are overpriced and make offers over what I recommend but that is their choice.
When I consult with my clients I find their motivations and what they are trying to accomplish. Waiting for you might be the right move, but that does not mean it is the right answer for all buyers. I have had folks that have rented and been kicked out of foreclosed homes, or they may just hate renting. Some may have no problem with renting for a year and even walking out on a lease halfway through if the find a great deal. Everyone is different and as Realtors we have to look at what these possible buyers want.
I have recommended to many people that they rent for a while. I am not after a quick sale today, just to have them mad at me later. I am looking for the sale when they are ready and by treating people right I also get a large number of referrals from my past clients.
Are there good deal out there? We can debate that, though there are many homes that are selling for much less than they can even be built for and as a son of a custom home builder I know that when prices go much below the cost of building these prices generally do not last. I believe that many subdivisions and certain price range homes have quite a bit of more downward pressure on prices whereas with some they have either stabilized or even gone up slightly.
I have plenty of reservations about the future of the housing market especially with all the debt our government is accumulating along with the risky housing loans the government is making. At the same time, over the the past 40 or more years I have seen that most people buy homes or stocks when they are at or near the all time highs, and usually when the market sees large declines the media, financial experts and the buyers don't know a recovery is taking place for many months after it happens. From the time I was a little kid through my college years working with my dad building homes and then later on investing in real estate and as a Realtor, I have seen many ups and downs. Although this is the most foreclosures I have seen, this market is not all that unusual. In my opinion during the Carter years when I had a mortgage with an interest rate of around 20% this does not seem so bad. And as the interest rates came down, I was buying real estate. Could I have bought lower? Yes, but I did just fine. I knew I could afford the payments, and while the interest rates were so high, I could buy at a lower price. I also knew that the interest rates would not stay that high forever and that I would be able to refinance at a lower rate which I did twice. As the rates came down the prices went up and I sold at a nice profit. One of my investments at that time I did lose money on and it is the only one I ever lost money on, but it was only because a new road was being built that made me want to sell at a loss.
I always look at the Real Estate and stock market as a series of waves. You do not want to by when the wave is peaking, you prefer to buy when the wave is at the lowest point, but as long as you are somwhere in the lowest half of the wave either riding it down or up you will do fine. If you bought at the highest point you will have to wait many years, maybe even a decade or longer for the prices to recover, but if you bought at the lower end of the wave time will heal all.
When I bought a home in the late 1990's we bought a townhome for $130,000. The sellers had purchased the townhome at $240,000 during the peak of the market. They bought when everyone else was buying and the two brothers thought they would rent out the home for a couple of years and would make a killing when they sold, just like buyers in 2005 and 2006. The media, financial experts and Realtors who were not selling any homes were saying at that time that the market was going to decline many more months or years. We bought, and within 6 months the home prices increased by 8% rather than the declines that were predicted.
If I had listened to the predicitions I would never have bought or would have bought 9 months to a year later when some were finally saying that the market was starting to recover. When we sold in 2003 we sold the townhome for $279,000. Not bad for 5 or 6 years time.
I do not listen to the media, financial experts or others predictions. I quite simply do not buy homes or stocks when everyone else is buying and everyone else is saying you better buy now. I buy when folks are saying it is the wrong time to buy and especially when people are just starting to buy.
In 2005 and 2006 I was telling buyers to be very careful especially when people were camping out for several days at a new development because the builder was going to hold a lottery where ten out of hundreds of people would win the right to have a home built.
According to most people it is wrong to be a contrarian, but it sure has worked well for me. I believe in buying low and selling high and most people believe in that but then turn around and buy high and sell low. It is just makes sense to so many to buy when everyone else is buying and to sell to prevent losing even more. In 2005 and 2006 it was very easy to see that trouble was coming when you looked and saw the trendlines changing and showing inventory increasing quickly while prices were still rising. Today we see inventory decreasing from almost 26 months down to 8+ months and either see the prices declining or stabilizing.
If you can afford to BUY, buy now ! Home rentals are ridiculous at an average of $1500 in the western suburbs of Chicago.
For that amount, you can own an REO or foreclosure that needs some work in a progressive area.
Great post Jeff!
How can real estate go up when those who might buy need jobs and a feeling of job security for it to happen?
FHA is starting to have bottom line problems. They have over an 8% default rate. It is so bad that Fannie May announced they would rent the houses back to the defaulting mortgage holder ( not owner, no way) for likely half what would be the mortgage cost for a year.
The fed is going to stop buying the mortgages soon. who will cover them when that stops?
Here is how I look at it. Every month I wait I save a little more money. And every month the prices drop more. We have 2.7 million foreclosures in the pipeline today. Over the next 2-3 years we can expect around 7 million foreclosures to come. Just knowing these 2 facts how can house prices go up without either hyperinflation or some fake government support structure like the buyers bribe of $8k?
Although these gifts from the taxpayers do boost sales, they do also artificially raise prices and likely will just push the day of reckoning further down the road. And of course the biggest problem is that we are not even paying for these tax credits now, instead we are selling the debt to the Chinese and others. Some estimate that the $15 - $30 billion or more we are spending now on it will likely cost us three to four times more with interest when we finally do pay for it.
The US government is now purchasing about 95% of all mortgage loans via Fannie Mae, Freddie Mac and Ginnie Mae. "Lenders" are really nothing more than loan brokers.
The federal reserve has been buying the vast majority of mortgage backed securities. They plan to stop buying in March. What will happen then? Interest rates go up. How much will prices drop to meet them?
We know that FHA, Fannie Mae, and Freddie Mac are having serious bottom line problems today. I am willing to bet Ginnie Mae is no different. Once those programs stop offering 3.5% (or even nothing) down & accepting low fico scores how many buyers will cease to exist? 59% or so maybe? Who will the lenders be? Who will be left that is able to buy a house?
US Q3 2009 foreclosures & delinquencies hit new records. One in 7 U.S. mortgages was foreclosing or delinquent.
I was told by a realtor relative that here in Maine 1 in 4 mortgages are late on payments.
I am sorry, but those are the stats we live with. Every single one of those stats is telling me the same thing.
WAIT until things are fixed by market forces. Once interest rates go up my cash will buy more. Once prices drop my cash will buy even more than before. I really want to buy now. But prices are still out of line with historic norms. When they arrive so will my purchase. The money I have now and will get in the future has (and will) cost me to much to simply throw it away on things that do not have a real value or real pricing. I can not afford to lose $30k or more even when I am looking at a lifetime house. There are better places for me to put that money. If a realtor will guarantee me (with an insurance policy) that after I buy ($250k or less) house prices will not drop more than $7k I would buy now. No one will as it is a poor bet.