Market Conditions in 20002>Question Details

1sttimer, Home Buyer in 20002

I am freaking out about buying. Home prices have fallen even in the 6 months that I've been looking.

Asked by 1sttimer, 20002 Fri Aug 1, 2008

Although I think I have a good deal on a nice house in an emerging neighborhood NOW, I am afraid that prices are just going to drop to about half of what the home is worth now and not emerge until after the point when I will want to sell (10 years from now). Should I just stay out of the kitchen until next year?

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The anti-market timing Realtors® argument about “missing the bottom” is just a different flavor of the “if you don’t buy now, you’ll be priced out forever” argument. Both are equally worthless.

The market will not skyrocket up when it bottoms out; it will bounce along the bottom for a number of years. If the last downturn is any measure; and the current downturn appears to be much worse, you should note the following. During the 13-year period from 1987 until 1999, real home prices stayed roughly within the range of $125,000 to $150,000 – national average.

“Sold my home” said it best – the downturn is accelerating. Pricing will not get better until inventory stabilizes; and we’re a very long way off.

10 years is a long investment horizon. That being said, you can save a lot by waiting another 12 to 18 months. If you’re dying for a home, you should wait until at least September. Many markets will be having their “capitulation” moment come school-opening.
5 votes Thank Flag Link Thu Aug 14, 2008
Yes, but if prices go down and interest rates go up and I have to sell, it is the PRICE of the home that matters, not the interest rate. If I still owe more on the home 10 years from now than I can sell the home for 10 years from now, it doesn't matter what my monthly PAYMENTS have been under the loan for the previous 10 years - I will still owe the bank (and the broker) at closing. I'm just worried that prices will fall precipitously to levels that are more sustainable and won't recover to anywhere near where they are now - even in 10 years...
4 votes Thank Flag Link Fri Aug 1, 2008
1stTimer, below I talked about buying now ONLY if you get a great deal, like the one for $150,000 below current value, and some of the other comments are missing the boat and being critical of my answer because I happen to be a Realtor. I stand to make no money from you or any of the others commenting here. You are all probably thousands of miles from me, and in my little area of Sequim and Port Angeles, no one reads this blog. Seriously. I do NOT believe that the answer is to buy buy buy. I never have said that. Words are important here, so I think some are dismissing 30 years of professional experience simply because I am a licensed Realtor. One might actually consider the possibility that with 20 years in real estate law and another 10 years in real estate transactions, that maybe, just maybe my experience in three decades of real estate cycles might have some relevance. Even with this experience, I don't pretend to have the answers. My counsel was and is to buy if you get an extraordinary deal. But that's good advice folks in an up or a down market, as long as it is a great price for the perfect home. Your assignment, 1stTimer, should you wish to accept it, is to find that needle in a haystack and buy it. But don't just buy because some people are saying it's time to buy, and don't NOT buy because naysayers are saying don't listen to Realtors. I've been both a lawyer and a Realtor, and I know people in both professions without integrity. But I also know some in both professions with integrity. That's true in every profession. Buy if you get a great bargain 1stTimer. But be sure you know what you're doing.
3 votes Thank Flag Link Fri Aug 22, 2008
There has been a number of very long response primarily from the folks that make a living selling property.

My response.....Home Prices going to continue to fall? HELL YES.

So I should BUY NOW and watch prices FALL farther ........NO WAY
3 votes Thank Flag Link Fri Aug 22, 2008
Joel,

Now that we're back to fundamentals such as real income levels and real affordability, home prices will lower in accordance with both monthly affordability and interest rates. If the interest goes up 7%, the price of the home will lower accordingly to maintain $2,398 a month if that happens to be what the average buyer for that particular type of home can afford.
2 votes Thank Flag Link Tue Sep 2, 2008
Hawaii Guy,

Two things:
1) "Now is not the good time to buy," you say - to which I ask, for whom? investors or 1st-time homebuyers who would live in it for quite a number of years? I don't care what you're thinking - yes, this matters. Because if it's the latter, then you have to consider a whole lot more of other things than just the price. One of which is number 2 below.

2) You're forgetting to factor in interest rates and programs that may not be available anymore if you wait. On a $400,000 loan, 30-yr fixed mortgage with a 6% rate, you will be paying about $2,398 a month. If the price goes down by $20,000, but the interest rate goes up by just 1% (you're now looking at a $380,000 loan with a 7% rate), your monthly payment will be about $2,525. That's an additional $127 a month.

All I'm saying is this:

This could be a good time to buy for some people and not a good time for other people. You have to look at different sets of criteria depending on what your intended purpose is for buying.
2 votes Thank Flag Link Tue Sep 2, 2008
I think you should think about how good of a deal it is as well as consider the market. Houses are actually depriciating in value and you have a valid point. So you may in fact lose money if you purchase now. My husband and I are renting and waiting.
2 votes Thank Flag Link Fri Aug 22, 2008
Wait a few more years. Prices are still declining, no bottom in sight. Do you want to lose your 20% downpayment in the next few years of declines? Renting is safe.
2 votes Thank Flag Link Fri Aug 15, 2008
Rent and save that extra money you'd be paying for a mortgage and invest it in mutual fund (the stock market is on sale right now). Now is the time to hold off and wait it out until prices start really coming down. I agree with the last two posts. Seriously, you WILL NOT MISS THE BOTTOM. Housing prices take time to go up and down...they don't move up and down in a week or two like stock prices will.
2 votes Thank Flag Link Fri Aug 15, 2008
As long as inventories are high in your zip code (greater than 7 months), then expect prices to drop. As inventories decline and approach 6 months, expect prices to stabilize and possibly rise. Inventories drive prices. When inventories get long in duration, you will find sellers who eventually capitulate, and lower their prices simply to move on. Likewise, in such markets, those homes in economic distress will also come down in price.
2 votes Thank Flag Link Mon Aug 11, 2008
Bumping this one too as nearly a year has passed. Kind of fun to see what advice turned out good and what didn't. Some of you ought to go to Vegas and make a killing and others.... oh, well.
1 vote Thank Flag Link Fri Jul 24, 2009
1sttimer, the point of my answer was to give you a logical price point, based on verifiable data, to determine what the price of a home would be had the idiotic exhuberance of 2000-2007 not occured.

Use the formula in my prior answer if you want to know what the home would have been approximately worth had all not lost their heads for 7 years. Of course there have been unusual deviations at times (some up, some down- but none like 2003-2007) but over the long run, past history shows reliable, consistent, average trends. Any valuation based on what has happened between 2004 and 2007 is wishful thinking if not just plain foolish.
1 vote Thank Flag Link Fri Aug 22, 2008
"Emerging" is the tricky part. In "Millionaire Next Door", Stanley points out that most millionaires prefer not to buy in new developments but rather favor longer more established nabes because there is a better track record to compare with. Since this is a declining market overall, why not get a really valuable property at a substantial discount, rather than gambling on an emerging neighborhood. So if this 'emerging neighborhood" is a new development, I would wait for a SERIOUS discount- like around 20% from their original asking price. If this neighborhood is "emerging" because the area is changing, I wouldn't bet on it, look to see why it is "emerging" and see if the trend is sustainable- new transportation initiatives in the area, growth of people in an area close to the capital. But even then, I would want a serious discount, again around 20%- for the fringe areas are often the last to go up, and the first to go down.

So again, don't freak out, appreciate the buying opportunity for what it is. But take full advantage of it, and buy into an area that will retain its value, but is now at a discount. Let someone else take the outsize risk for an "emerging neighborhood."

Good Luck,
Antolin
1 vote Thank Flag Link Fri Aug 22, 2008
Hey 1sttimer, I would disagree with the HawaiiGuy who said don't buy because prices are going lower. They may go lower. But what you're looking for is a great house at a reasonable price that you can afford. Right? I'll give you a great example. I just sold a house to a nice couple who have been looking and want to buy rather than rent for another year. We just found them a house for them that is about $150,000 below fair market value. Okay dude. Is it going to get any better than that? Not likely. Reality is this house would have sold very soon to someone else. It should have been about $700,000. My clients bought it for $549,000. Come on. It is not likely to get better than finding the absolutely perfect home at $150k below current FMV in this market. Not FMV last year, FMV right now in this market. The answer to your question is this. It may or may not be a good time to buy a house. Doesn't matter what's going on out there. If you find the perfect home at an incredible price--buy it. End of story.
1 vote Thank Flag Link Fri Aug 22, 2008
National data is great but I have a different perspective. Try asking your realtor to research home prices over the last few years and see if there are any neighborhoods that have maintained, or even increased in value. In our area, we have neighborhoods that have increased in value 20-43% between 2003-2007.
The neighborhoods I am referring to have good schools, are close to shopping, lower crime rates, lots of trees, and are generally just pleasant environments to live in.
They have been sound investments since their inception, 50-100 years ago.
We also have some areas that have decreased significantly in value; some as much as 25%.
The key is to select an area that has maintained its' value and will probably increase in value over time. Every city has at least one neighborhood that will fall into this category.
Buying a home, especially the first time, is a little nervewracking; I understand that and so will your realtor.
Try to pick one you feel comfortable with; one who doesn't mind answering questions; one with patience.
We are all different people and you will want to find someone who you will enjoy being around while you go through the process of shopping for a mortgage, finding a home, writing the contract, inspections, negotiations, finalizing and getting everything ready for closing. Someone who communicates well with you.
If you don't know any realtors personally and none of your friends or family can recommend someone you would feel comfortable with, try visiting some open houses in the neighborhoods you especially like. There, you will have the opportunity to chat with the different realtors to see if conversation flows easily between you. You can also ask questions about the houses you visit so you can learn as you go through your selection process. If you feel a connection, or just comfortable talking, to any particular realtor, tell them you are considering buying your first home and are looking for information. There is a great deal of information to give you so it can't really be done all at once but listen and read the information they give you so you can learn little by little. I would think that you could find someone compatible to work with by visiting 10 or 15 houses.
1 vote Thank Flag Link Fri Aug 22, 2008
There are just too many variables for your question to be answered to any degree of certainty, unless hand grenade accuracy will suffice.
After asking yourself "Is it what I want, where I want it, and can I comfortably aford it?", the next question everyone wants to know the answer to is "If i want/need to sell it, will I at least break even?"
So: Are you buying the highest priced home in a decling neighborhood? Are you buying a 6000sq foot McMansion which no one will want if fuel heating costs skyrocket? Are you buying a home in a middle manager's price range at which there will be future buyers? - or will that local company at which all the middle management types work move or go belly-up and take all your potential buyers with it (to say nothing of all the homes those displace middle managers are going to put on the market.)
Unless you're extremely fortuitous, you are going to be down 6% right off the bat. Whoever sold you the home, sold it at what you and they considered a "fair price" plus realtor commision. To break even, you need to sell it at a price 6% greater so you can get what you paid plus pay your realtor. You're in the hole as soon as you buy.
Enff of my Bull. The advice I give to those who have asked me is: nationally the historic appreciation for homes has been 3 1/2 to 5%. The government has this data for nealy all metro areas going back to the early 80's on a year by year basis. Find this data for the metro area in which you wish to buy (its on the internet). Average the annual percentage appreciation from as early a date as the data is available up to the year real estate in your metro went nuts---its imposible to miss--somewhere.about 1999 to 2002. Next: research the prior selling price of the home you want to by if it sold prior to the big bang. If your desired home is new const. or has no sale prior to the big bang then get the selling price for a couple of comparibles (use the auditor's site for your metro). Now take that prior selling price (remember it must have been prior to the big bang) and compound it by the average appreciation percentage you calculated for each year from that prior selling date untill the present. That is the value the house should historically have had if it had not been for the big bang AND is the price I would recommend. (remember I said "I"-check my handle)

Good luck.
1 vote Thank Flag Link Fri Aug 22, 2008
You know, Realtor bashing doesn't help and neither does looking at your most important asset as a piggy bank. 2005 is OVER. Let's move on! Real Estate is a commodity just as much as gold or crude oil. The market goes up, the market goes down. YOU still have to live somewhere. Your choice is rent (and hope your landlord isn't going into foreclosure and didn't tell you) or buy. Whatever you do, LIVE LIFE NOW!!
1 vote Thank Flag Link Fri Aug 22, 2008
Also remember that the statistics about home prices include all the over priced properties that sellers are not selling because they want the 2005 price. Market is VERY specific to house type, neighborhood, specific house, etc. It is very "it depends". Worst thing to do is freak out. Stay out of the market for a bit, or perhaps commit to looking but NOT buying. Go look at property with the "I am doing research" perspective instead of a "I must determine which is the very best value". If you take the pressure off of your self, maybe it will be easier for you to research current values, and really see good value when it comes along - as it does come along. Good luck!
1 vote Thank Flag Link Fri Aug 22, 2008
1sttimer,
Keep in mind that real estate is local. See what's going on in your area. In my area, we are starting to see multiple offers anywhere from 98%-105% of the listing price. Also, inventory is going down and sales are going up.

Whether or not prices will still go down does not matter, if your goal is to be a homeowner AND if you're planning on staying in that house for a number of years, so long as you're purchasing within the bottom third range of the curve.. If you're looking at buying real estate as an investment and get a high ROI, then yes, you should worry about whether prices will still come down. But assume that you can predict when prices hit bottom, question now is will you still be able to secure a loan?
1 vote Thank Flag Link Fri Aug 15, 2008
Take a deep breath. Repaeat after me, "Don't panic". Take another deep breath. Now - If you are going to stay for 10 years or more, you should be OK to buy now. However, if it causes you this much stress, it mught be a good idea to wait - you just may not be ready for home ownership. However, ask yourself how much stress will you inflict on yourself if your market starts to recover, and you miss the "bottom". Also, be aware that you never know when the market has bottomed until after the fact. Best of luck! (Take another deep breath...)
1 vote Thank Flag Link Fri Aug 1, 2008
How fun to go back and look at the "Realtor" advise from last August indicating NOW IS THE TIME TO BUY.

This was my answer from August 2008 and it is still not the time to buy.

BEST ANSWER

NOW IS THE TIME TO BUY continues to be the answer favored by Realtors with that 6% perspective. An article in the Wall Street Journal is as follows:

Former Federal Reserve Chairman Alan Greenspan predicts U.S. house prices will begin to stabilize in the first half of next year, the Wall Street Journal reported on Wednesday

"Home prices in the U.S. are likely to start to stabilize or touch bottom sometime in the first half of 2009," he said in an interview with the Wall Street Journal, reported on the newspaper's website on Wednesday.

But Greenspan cautioned that even at a bottom "prices could continue to drift lower through 2009 and beyond."

"An end to the decline in house prices, he explained, matters not only to American homeowners but is a necessary condition for an end to the current global financial crisis."

In my opinion, does Greenspan have a magic Crystal Ball?.HELL NO

Will the price of the "perfect" house CONTINUE to FALL the remainder of 2008 and into 2009...HELL YES
0 votes Thank Flag Link Fri Jul 24, 2009
The National Association of Realtors report for July 2008

Sales of existing homes rose 3.1 percent in July.

Home sales were 13.2 percent lower than a year ago and prices were down dramatically. The median price for a home sold in July dropped to $212,000, down by 7.1 percent a year ago.

Despite the third monthly sales jump this year, the number of unsold single-family homes and condominiums rose to 4.67 million, the highest number since 1968, when the Realtors group started tracking the data.

That represented a 11.2 month supply at the July sales pace, matching the all-time high set in April.

Despite the rise in sales, Lawrence Yun, the Realtors’ chief economist, was reluctant to conclude that the U.S. housing market has hit bottom.

Sounds like it is still NOT THE TIME TO BUY>>>>>>
0 votes Thank Flag Link Mon Aug 25, 2008
I think that now is a great time to buy. It is hard to predict the market. It always has its ups and downs. But in this area with rent close to the same amount as a mortgage payment is smarter to put it into owning. And holding onto a property for a long period. It should def. increase in value. There are so many new things happening and coming to DC. It is always improving every day!!!!!
0 votes Thank Flag Link Sat Aug 23, 2008
It is difficult to tell how low the market will go. It is a safe bet that you will make money on a real estate purchase if you plan on holding it for a ten year period. This is not a market where one can make quick money in a flip. I believe that for a primary residence it is always better to own than to throw money away on rent.
Web Reference: http://www.askforjames.com
0 votes Thank Flag Link Fri Aug 22, 2008
I AGREE - NOW IS THE TIME TO BUY!!!!! This has been my slogan for 6 months. I am selling and people are buying. Everyone can argue if the market has hit the bottom or not. What should you do?? wait for it to go up and miss all of the GREAT Buys? No!!! Buy Now. Prices on homes are FABULOUS FOR BUYERS! IT'S A BUYERS MARKET - SO BUY!
0 votes Thank Flag Link Fri Aug 22, 2008
BEST ANSWER

NOW IS THE TIME TO BUY continues to be the answer favored by Realtors with that 6% perspective. An article in the Wall Street Journal is as follows:

Former Federal Reserve Chairman Alan Greenspan predicts U.S. house prices will begin to stabilize in the first half of next year, the Wall Street Journal reported on Wednesday

"Home prices in the U.S. are likely to start to stabilize or touch bottom sometime in the first half of 2009," he said in an interview with the Wall Street Journal, reported on the newspaper's website on Wednesday.

But Greenspan cautioned that even at a bottom "prices could continue to drift lower through 2009 and beyond."

"An end to the decline in house prices, he explained, matters not only to American homeowners but is a necessary condition for an end to the current global financial crisis."

In my opinion, does Greenspan have a magic Crystal Ball?.HELL NO

Will the price of the "perfect" house CONTINUE to FALL the remainder of 2008 and into 2009...HELL YES
0 votes Thank Flag Link Fri Aug 22, 2008
A lot of good old-fashioned research should help you determine if this year, this season, today, and THIS PROPERTY is a right decision for you. A lot of data is available to do this with, and given the comparative price stability in the District during the last few years' sturm-and-drang around the country...smile, don't worry! OUTDOORS magazine voted DC its #1 'good town' recently, and zips 20001, 20002 are terrific representative neighborhoods of everything the article talks about ! Folks outside the beltway are clammering to get back 'inside', there's a building height-ceiling here that has prevented over-building, and the night-life can't be beat.

Keep your head, keep your cool, visit my website, or call me anytime: 301-801-2970. Cheers !!
0 votes Thank Flag Link Thu Aug 14, 2008
Every area is different, so what is happening in Northern Westchester County in New York may not be the same as where you are. In this area, the only prices that are still dropping are for the homes in poor condition. We have a scarcity of well maintained and beautifully decorated homes, and there ARE buyers who are waiting for one of those homes. And yet there are lots of homes that need a good cleaning, could use a paint job or a new bathroom or kitchen. Those are the ones that you can get a real bargain on, if the sellers are anxious to sell.
0 votes Thank Flag Link Fri Aug 1, 2008
I recently saw some economic predictions on specific markets (I can't remember the source, probably something like AOL Money or *something* like that) and it did predict overall declines for the DC market for next year. That being the case, there are definitely parts doing better and worse. McLean 22101 seems to be suddenly creeping back up; a lot of Fairfax County still seems robust as far as I can tell - these suburbs in Fairfax may have declined, but are still very pricey! As much as it pains me to say this, Manassas was hit hard, but parts of Haymarket (not all) fared much better. If you have really found a great location (check schools even if you don't have children), then you may as well bite the bullet and buy now. Everything will even out anyhow - interest rates may/will likely rise, and you will have to pay the money to a landlord if you don't purchase. If you are looking at a location where the slope is going straight down, then I would think twice ...
0 votes Thank Flag Link Fri Aug 1, 2008
Hello 1 timer,
If you have found the home that yo like and it looks like a good deal to you go ahead and go for it, specially if you are going to stay 10 years or so.
Prices may still go down but interrest rates may go up.
0 votes Thank Flag Link Fri Aug 1, 2008
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