M - Per the S&P/Case-Shiller Home Price Index, the decline in Washington Metro prices is accelerating. November 2007 to December 2008 saw a price decline of 2.4% in one month. December to January 2008 saw a price decline of 2.5% in one month.

With that in mind, the chances of having a good deal of your equity evaporate after purchasing now is very real and very probable.

Eh, what’s 2.4 percent in one month? Extrapolate those numbers for a 12 month period and, well, the picture doesn’t look good. I don’t see anything propping up any market right now from these kinds of price declines.

Wait until at least Fall ’08 – at the earliest. As the spring selling season goes bust, so will the prices come Fall as sellers capitulate and realize that they can’t get their fantasy prices. Sellers will be more motivated and more fearful then.

Don’t be pressured into buying now. Even if we bottomed out here, prices will bounce along the bottom for several years before any upwards momentum in prices is established. You don’t have to fear “being priced out forever” if you don’t buy now.

And no – this isn’t the bottom.

Chris said, “The deals available now, will not be available in 18-24 months, and that is a fact!(in my area).”

Chris is right. These deals won’t be available. Better ones will.

Good luck,
-John

Chris and Joey:

Here’s an example of how you refute a point with facts.

You say Buffett thinks Real Estate is a good investment? Well, here’s what he had to say about it on March 3, 2008. The link to the transcript is below.

“And I get the figures every month. We have a number of real estate brokerage operations around the country, and I get the--I get the figures from many markets on listings and sales, and I've seen something like Dade and Broward County go from 6,000 listings and 3600 sales a month to where they're now, I think, 82,000 listings and about 1500 sales a month. So unless there's some major intervention by the government in some way, or something of the sort, home prices have not stopped going down.” [Warren Buffett, CNBC, March 3, 2008]

So, unless he got rich by buying rapidly depreciating assets, then I doubt he thinks it’s a good time to buy given the above.

Why don’t you post your grand article here about how great your local real estate market is, so we can all get a good laugh. I think the Las Vegas press had tons of articles about how great their RE market was in 2004.

-John

Chris,

Since I don't live in your area, why don't you present some data from a scholarly source to back up your assertion.

Thanks,
-John

wait
going lower
especially if there is a recession
and the fed chief bernanke
thinks its a good possibility this year

anyways

lets hope its not a 10 year recession
just the usual 18 - 24 months

good luck

The market is supposed to bottom out by another 10-20% by mid 2009. And this is a consensus from all the analysts on wall street. I wouldn't touch a property until next spring. Why buy a depreciating asset? It's simple supply and demand. Just run a google search and will see all the pundits weigh in. The only people saying the bottom has come are the realtors. Oh shocker! Why would they say that?

Joey,

I’m sensing some anger here; and I complemented you! Your example is anecdotal, but I’ll continue with it anyways.

My point is that your $170 cash flow is just that, cash flow. The RETURN is negative after those pesky repairs, upkeep and replacement reserves are taken into account.

I know a lot about investing, which is why I’m not “investing” in Real Estate, my friend. It’s not an investment, it’s a consumption good – which is where rent equivalencies come into the picture, a point you made quite well I might add.

And, as to not sharing my name – let me know when you’re in New York City and I’ll be more than happy to meet you for lunch – on me - and have a conversation with you about real estate, investing, the economy or whatever else. I can assure you, there is no fear on my part. I don’t think the internet is the best venue to broadcast your name, thanks.

My e-mail is my trulia log on, john_the_bruce, at yahoo. (Avoiding spam-bots.)

Good luck,
-John

Joey,

Don’t let the numbers get in the way of your anecdotal evidence.

I don’t know what point you’re trying to argue by saying you bought a house for 67% less than it’s 2006 sales price. Ok – great. The bubble is popping, the market is correcting faster than anyone could have thought – mostly due to overleveraging.

You’re writing home about a $170 per month cash flow? After you factor in repairs, replacement reserves, upkeep, etc – I doubt there is anything left over and the return is negative. Nice. Where do I sign?

Joey said, “My data is in my clients and my bank accounts.” People and money are like creeks and water. The creeks with the least amount of water tend to make the most noise.

Granted, you are probably one of the smarter Realtors™ that I have encountered due to one simple fact. You realize that a house is worth what it will rent for. You’d be surprised the number of “professionals” that do not understand this very fundamental fact.

PS – you never answered my question: If we're "running out of real estate," how can you explain such a thing as an "abandoned house?"


Your friend Chris went back and deleted all his comments – nice move. I wouldn’t want to memorialize that either.

Good luck to all,
-John

At the end of the day, you want to argue data and facts with emotions – you feel that the market is doing well. Well, I can’t speak intelligently about your feelings. Your second best argument is to find fault with my spelling. That’s the true refuge of someone who has no meaningful or logical argument to make.

Chris said, “Case-Shiller ‘sigh’ you are truly a numbers person when empirical evidence and the facts on the ground provide a more compelling picture.”

You’re kidding right? What empirical evidence? I would love to see your “evidence!”

Don’t let the downtrend and the numbers get in your way of your feelings about the market. Buy a house today. Please don’t read the newspaper, I need you to buy a house!

The facts on the ground are these. Detroit metro (closest market to Grand Rapids) was down 1.5 percent between November and December, 2007. December, 2007, to January, 2008, it’s down 3 percent. Extrapolated over 12 months, Detroit will be down 30 percent by 2009. Nothing to see here – please buy a house – just ignore these pesky numbers.

Or how about YOUR numbers, Chris? 50 percent (2 of 4) of the “Featured Listings” on your personal site are foreclosures or short-sales. Yeah, looks good. If that’s your empirical evidence, then yes, things are moving along nicely in the great city of Grand Rapids. Buy now before these deals are gone!


Chris said, “AND Case-Shiller has a 2 month lag time. I can't say that I will be waiting for the new report in 3 weeks. "not my bag". Hopefully it will reflect a real view (in my area)”

2 month old Case-Shiller; as apposed to your “boots on the ground”, feelings-base perspective that paints such a rosier picture of the market. Enjoy your delusion.

So, how did someone with a BS in business administration end up selling 700 s.f. shacks in Grand Rapids?

Chris,

I pity your client(s). You say I scoff when you offer proof that your market is up? I didn't scoff because you never presented any proof for me to scoff at my friend. Where is your data, Chris? Chris, where is your data?

Moreover, since you’re in Michigan – where’s your EMPLOYMENT data? Inventory up. Employment down. You don’t need a college degree to figure this out, Chris. These things usually end badly.

You’re right. I’ve never had a career in real estate. You got me there. My formal training is in finance and economics. From your comments I can gather than you know little of either, although both would be valuable to someone in your “profession.”

You say I speak from ignorance, yet I offer information gleamed from university sponsored economy surveys and studies that present real-world data, like the Case-Shiller Home Price Index. You do know what Case-Shiller is, don’t you, Chris?

I'd walk away too if I was in a battle of wits and found myself unarmed.

-John

In the face of facts, figures and learned studies, you follow the NAR rule book to a tee - offer an EMOTIONAL response.

Make an argument, refute a point or GO HOME, Joey.

P.S. If we're "running out of real estate," can you explain such a thing as an "abandoned house?" Scarcity and worthlessness in the same market; it's a non-starter, Joey. The fact that you can quote Buffett leads me to believe there might be hope for you...

The answer depends on the location of where you want to buy. Right now some areas are moving very well and others we will may see a downward trend for months. You have to weigh how long you are looking to live in the home, where you want to live and the current interest rates. If rates go up and the area you want to buy remains steady will you be able to afford the home you want? You have to consider all the factors before you decide to buy or wait. No one has a crystal ball. We just have to make informed decisions based on what we know today and historic trends in our area.

Can't resist the chime in. Joey - If you are finding 70% off recorded sales price from 2 years ago and can rent it for an 18% pre-tax yield, it sounds like a solid deal. Here's that catch, try doing that with another zero at the end, much less something really meaningful like 2 more zeros. The big boys are buying land inventory at 20% cost basis from the builders in areas where recovery is at least 5 years out but they get the discount because they are buying bulk. Truth is, because we aren't seeing the upper middle and high end come down meaningfully, we aren't close to a bottom. It is starting. Trulia boards are hysterical. I was reading another thread where the seller was wondering why only one broker came to their open house - guess what all the brokers said in response? Your asking price is too high and you have to budget 6 to 12 months now to sell. Some of the posting brokers are the same ones on this site who claim that we are at the bottom and you need to buy today or you'll miss it. I mean, if you the same home sold at asking price within 30 days a year ago and today it takes 6 to 12 months, clearly the "market" is waiting for sellers to get real about prices. Brokers are funny. They actually benefit when prices come down because transaction volume goes up but most of the seem to be so focused on the myth that real estate is not cyclical - like every other human behavior. At least they aren't gold bugs....

Last comment to John the Bruce, a.k.a. I am afraid to tell people my real name.

Let me correct myself, when I said people are running out of real estate, I meant running away from real estate.

If you knew anything about investing you would know that the $170 positive cash flow on this property translates into 18% annual return. (remember 10% down)

Wow, that’s not all Bravehart fan, let us not forget the tax benefits for the property owner.

I would explain this but I do not have time, so why don’t you call into Cramer give him a big boya and he will give you a lesson. He also agrees that it is time to buy real estate. Good Luck, thanks for the debate.

i remember this story
from childhood

there was a king
and he had many servants
and the servants always
told the king that he looked great
and they made him beautiful clothes
and all the people in the kingdom
told him he looked great
in his beautiful clothes
and one day
some little kid told him
that he wasn't wearing
any clothes at all
the king had been parading
around in a fantasy
the king finally realized
that he was wearing no clothes
actually the book
shows the king in
ugly red pajamas
and the king was shocked
but eventually came to terms
with his mistake
and decides to
put some clothes on

John: 1 - Chris: 0. You never even had a chance, Chris.

Chris,

You're right. Real estate is local ™.

Good luck,
-John

i doubt warren said that in 2007
but it was a good investment for him
he has an "avg joe" house in omaha, NE
he lived in it for over 30 years, and still does
drive an "avg joe" car
lives well within his means

anyways

BEST ANSWER

good luck

Hi,

In October 07, Warren Buffet said that Real Estate was a good investment!

I will say that is true today, In some places.

John the Bruce,

Since you don't live in my area, I can assure you that you are wrong. (about my area only)

The sky is falling…… the sky is falling.

Run for your life…… real estate is going to destroy the universe.


While everyone is running out of real estate, the real investors are buying the smart property.

Warren Buffett said it best.
"Be fearful when others are greedy and greedy when others are fearful"

M,

People like Hi are fueling the mixed messages. Constant blanket statements about "It isn't good to buy, keep renting" are just wrong!!!!

In many places it is a great to buy, in many it is not. In West Michigan, where I am, the market has never been better for buyers. After 4 years, we have finally bottomed out (it seems) and we are on the slow road to recovery. The deals available now, will not be available in 18-24 months, and that is a fact!(in my area).

Cindy is right on the button with her answer.

It's too bad this question and answers to it are still showing up nearly 2 1/2 years later. Prices in Northern Virginia have been on the upswing for nearly a year now (August 2009) and are above last year's prices as a whole by nearly 14%. That's in Fairfax County alone.
If you look at communities (which is a ground level look at pricing) you'll see prices up from 1 - 15% depending on the community.
The majority of housing in Fairfax County is now "normal". Only 18 percent are considered distressed (short sale and bank-owned). Prices on the rise, inventory is low, and interest rates (the most important part of the financial question here) are at RECORD lows - some as low as 4% for fixed rate.

The market as a *whole* is set to bottom out by another 10-15%, yes, but the question is what are the specific local markets doing. Some will see larger drops, others less so. Some will see recorrections sooner, others will take longer to correct. Just like the bubbles were locally dependent, so will the correction -- and thus your decision to buy or rent should be, in the end, based on local conditions. Some urban markets have already significantly corrected; others less so.

I essentially agree with some of the points Brad makes. The exception is the comment on the military. I am military and I have discussed the buy vs rent issues several times with lots of folks. The market has overtaken earnings- even for all us highly paid military folks (that is a joke). Most of the guys I know moving out are either renting out their homes here in Hampton/ Yorktown. Those coming in are looking to rent. Our BAH will cover almost all rentals right now. I also think the market had overheated here. It took longer to hit because of the military market. The reality is DoD just doesn't have that many folks able to afford to but a 475K house but we do have lots who can afford to rent one.

Ok, I'm going to try to answer for Cindy Jones who asked about Yorktown homes since that is my area of expertise.

First, we must agree that all of the classic benefits of ownership (security, tax incentive, pride of ownership) still prevail, and that it is only the potential for short term loss that we are afraid of. Are you unsure about whether or not you will be living in this area for the next 5 years? If I were unsure about that, it would definitely weigh on my willingness to buy. But if you see yourself staying here a while, I would go ahead and buy. But find the right house! Basically, you need to find the house you want and then negotiate the most favorable terms. So what if comps put the house $10,000 less 4 months later? Do you still have the best house out of the ones that were available when you wanted to buy? Yes. Are home values going to continue to appreciate in the longer term? Yes! Do you experience any out of pocket costs if the value of your home decreases slightly before it goes back up? No! So I guess I just don't understand the problem. There is a tremendous amount of inventory on the market. Most are unrealistic sellers who don't have to sell. These sellers will eventually sell for a realistic (lower) price or take their homes off the market. When they do, it will appear as if there are suddenly fewer homes on the market and that homes are selling more quickly. Once this happen, sellers' willingness to be AS flexible will change. Of course the only way to know when we've reached the bottom is after we've already past it. Rather than frustrate yourself with trying to time the market, you should be shopping with a savvy, aggressive agent to help you get the best value you can today! Overall economic data for Hampton Roads is very favorable and the liquidity in the housing market provided by the constant in and out flow of the military has helped to keep home prices from over heating too much in Yorktown. If anything, you'll notice that prices in Yorktown skew higher especially in the under $450K range. This is largely due to the perception that the York County School system is more desirable than others on the Peninsula. Look up my contact info on my profile, I'm happy to help you look for that perfect home.

I am a buyer and wondering the same thing- now or wait. There is so much confusing information out there regarding the market. I can say that the homes I have looked at in the Yorktown area are way overpriced. The resale market is SLOW and there will be a downward adjustment in asking prices as the summer continues. I will watch the market and look for a deal. If you see something you like but it is, in your opinion, overpriced put in an offer you think it is worth. Lots of professionals think they determine the price through CMA and other methods but the real market price will be driven by the buyers. The buyers ability to pay is driven by the economy which is in trouble. The result should be lower prices. My two cents- wait and watch the sellers sweat out the summer then scoop a great deal in late July or August.

The point I am making is real estate is local and there are great deals out there for investors and future home buyers.

I am not disagreeing with the point that as an Avg prices are still falling, because they are, as an Avg; however, there are homes and neighborhoods out there that are under priced.

There are many homes and neighborhoods that are over priced because there have been little to no distressed properties for sale in those respective neighborhoods. The neighborhoods that have had a lot of distressed sales are the under priced areas.
(distressed sales = REO’s/foreclosed homes and short sales)

I can only prove this in Northern Va, and I would venture a guess and say it is the same in many places around the country.

I am disagreeing with two points, Real estate can be a great investment and there are opportunities in this market.

Second, giving a blanket statement that real estate is dropping everywhere and do not buy now, is 100% wrong.

This is a great time to buy as long as a buyer and their REALTOR are sharp and do their due diligence to find the best deals available.

John the Bruce, if I seem bitter I apologize that was not my intent; we will just have to agree to disagree.

Again good luck to you all, I hope you all make a lot of money.

Chris,

I'll hold you to it - the beer that is!

-John

John,

I thought we agreed to be good!

I was asked by a collegue (who I respect) to remove my posts.

Can't we all just get along? :) I'll buy you a beer next time you visit our fair city.

I will try to make this one simple for all those who throw out numbers and statistics they see on CNBC or their e-trade account.

I just sold a single family home in Northern VA for $115,000. This home last sold 2 years ago for $355,000.

The total payment is $929.53 that includes PITI. (10% down)

The new owner has rented it for a two year lease of 1,100.

That is a $170 positive cash flow and someone else paying for the new owner’s mortgage.

Most people will never make money in real estate because they do not know how too, and this does include many REALTORS. Real estate is local, and to generalize it is ignorant.

I do not need to prove any of this to anyone except my clients.

While many of you sit in your Lazyboy and play armchair stock broker or real estate mogul. I will continue to make money in any market for myself and my clients.

Amateur investors were part of the cause that drove up prices anyway so I hope most people keep running.

John The Bruce—My data is in my clients and my bank accounts.

WOW! What a great debate. Whereever you are you can almost feel what's going on and pull some statistics to help your decision. A good realtor can help, but can not predict the future. Only "hindsight is 20/20" . Get a realtor, get financing and determine your housing needs. It will all come together. Also if you are looking for foreclosures check the Long and Foster web site.

Cindy is correct; the Northern VA area is much different neighborhood to neighborhood. I have seen two comparable homes a few miles apart in different neighborhoods 80k different in price.

Why is this, you ask?

Some neighborhoods have more REO’s/foreclosed homes and have caused prices in the neighborhood to drop. The other home just a few miles away has had few or no distressed homes and has remained priced too high. This has caused some areas to be overpriced and there are even some areas that are under priced. This is why it is imperative to have a good agent working for you.

Good Luck

I am looking to buy in Centreville or Springfield, VA...

thanks for your input chris
and i respect your opinion

anyways

good luck

http://money.cnn.com/2008/04/02/news/economy/bernanke_testim…