Jonathan, Both Buyer and Seller in Pleasant Hill, CA

Should I buy in Lamorinda in 2008 or wait until 2009 for even lower prices?

Asked by Jonathan, Pleasant Hill, CA Wed Feb 13, 2008

I am seeking a 3 or 4 bedroom home in Lamorinda (or Walnut Creek) with at least 2000 sq. feet and at least a .3 acre lot. Over the last year, I have seen much more homes listed (and sold) in this price range than in 2006 or earlier. With the recent change to Fannie Mae/Freddie Mac limits, do you expect that there will be even more homes available in this price range for the remainder of 2008, or will there be more in 2009 (when the changes to mortgage limits expires). I am in no great hurry to sell/buy this year -- unless there is a "window of opportunity" and passing it up would be economically foolish. All recommendations, suggestions and comments welcom. Thank you. Jonathan

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John’s answer
here are some pitfalls to avoid when buying in LaMorinda, WC, Danville, etc.

Don't believe the hype. This is not heaven or the best place in the world to live in. I have lived in Moraga since 1994. Nice town. Not worth $300 sq/ft.

Schools: Spending 500K extra for 'good" school district. Give me a break.
Schools don't make the student, that is a complex interation of parents, self-motivation, genetics etc. Sure the schools are better, but we've some pretty teachers and compared nationally the school are mediocre. This is a real estate agent tactic b/c they know people will spend on their kids eduction, etc But you are not getting anything more than a vanilla education. Parents,students here are more motivated hence the scores are better. Not worth 500 grand.

Prices will never go down here! Oh, ok. You'll need to find alot of people who earn 400K plus/yr to afford the average 1.2 million dollar shack in this area. FYI. for that house you need to earn pre tax 27K/yr to pay just the property taxes. around 15K.

This is an investment. Homes are the biggest expense you'll ever have. They are not investments. They don't have free cash flow, they appreciate at the rate of inflation. The larger they are, the more expensive to upkeep, taxes, etc. You will LOSE $ on every home purchase long term. Considering the loss of value of the dollar and lost opporunity cost of placing $$ in mutual funds, I am down around 50% from 1994, even accounting for the crazy appreciation of the bubble years.
Enjoy your home. It is not a bank or meant to make you $$.

Don't trust a real estate agent. Ever.

Good luck
6 votes Thank Flag Link Fri Mar 7, 2008
BEST ANSWER
I would wait until the spring/summer buying season is over. That's when families all look to buy houses (from April to August or so) so their kids can change school districts when school is out.

Whatever hasn't sold by September or October will start to come down if the buyers need to sell.

Yes, you might find a deal before then, and yes, interest rates may go up---or down--- by then, but I am looking for a nicer house here on the other side of the hill and will be waiting until the fall and see what has not sold, but still keeping an eye out for a good deal on the a place in the specific area etc I want.
0 votes Thank Flag Link Thu Mar 6, 2008
yeah, don't listen to the experts listen to an amateur....where have you been for the last year or so? How many people across this country got lied to about housing that "ALWAYS GO UP"? and "YOU CAN ALWAYS REFI BEFORE THE RATE RESETS"? The "experts" you are are referring to are glorified used-car salesmen, and lying mortgage brokers, who have a HUGE conflict of interest when it comes to a "good time to buy". JUST LIKE YOU "HOME SELLER", yeah you have no bias here at all...Let me guess, underwater? ARM Reset? TOUGH. SEE YOU ON THE COURTHOUSE STEPS.
3 votes Thank Flag Link Thu Feb 21, 2008
yea, don't listen to the experts, listen to an an amateur. When to buy is often a function of timing. Now is a great time to buy, mortgage rates are climbing, but still reasonable, and median price in Lafayette is climbing, I think, does someone have Jan. numbers?

Predict the future or buy in a buyers market? Best of luck to you.
3 votes Thank Flag Link Thu Feb 21, 2008
Don't listen to the agents on here, it's always a "great time to buy" to them...Remember they were the ones egging on the ridiculous blowout in RE prices and didn't predict the biggest selloff in US history. Lamorinda has only begun to feel the effects. If you want to know what the prices will fall to, go back to pre-bubble prices, say 1999, and add 4% each year. Historically, house prices are 2.5 - 4 times the median income of the area. Lamorinda's median income is approximately $110K, so you are looking at 330K - 440K plus a 20% down payment for what should be the median price. DON'T CATCH A FALLING KNIFE.
3 votes Thank Flag Link Wed Feb 20, 2008
strike while the iron is hot. no guarantees that mortgage interest rates will be lower next year than today. fact is, they're trending upward. http://bankrate.com/brm/publ/30yrmolg.asp

smart buyers buy low and sell high. my 2 cents. check the links and best of luck.
2 votes Thank Flag Link Wed Feb 13, 2008
You should wait until the median income to median price ratio returns to historical norms. You might need to use high median income to do the analysis, since Lamorinda is a prefered community for those commuting into the City. Even using a $200k income (which is higher than the city) one would expect median home prices to be in the $600,000 to $800,000 range. Lamorinda's median is still over a million.
1 vote Thank Flag Link Sun Apr 6, 2008
I dont think the new conforming loan limits will apply to lamorinda unless sellers get realistic about lowering their 2000 sqft crapshacks from 1.2MM to 700k where they belong.
1 vote Thank Flag Link Fri Apr 4, 2008
FYI, median price in Lafayette is up and so are mortgage interest rates. Happy hunting.

Bill, check here: http://www.angercoach.com/
1 vote Thank Flag Link Sat Feb 23, 2008
Bill you Rock!!! Some one said 'Now is one of the best times...' this I used to hear 2yrs back. Yes it is true that we dont know when is the bottom. But why not wait till bottom and start looking for house and buy within 1-2mths. At least we will be sure that we are buying when the prices are going up. Assume currently house is listed for $500K, and prices move like this $500-$480-$450-$425-$400-$420-$430-$440. Assuming you buy at $450, u are definately in loss. But if you start looking at homes when the prices were at $430 i.e. when they just started moving, you may end up buying at $440. But u are sure it is not going to go down and hence save $60K in loss of equity by not buying at $500 of current price. So have patience, wait ....till it bottoms out and then starts going up. What do you say Bill?
1 vote Thank Flag Link Fri Feb 22, 2008
Jonathan,
I agree with Jb's comments. There are no guarantees in life. Moreover, I can't tell you the number of people that tell me they wished they had bought a property the year prior because they would have saved 'x' amount of dollars.

Lamorinda is still a very strong market and will continue to be so because of the top rated schools and the close proximity to SF & Oakland. Yes, appreciation on property is not skyrocketing like it was back in 2005, but it is still appreciating. My recommendation is if you can get into the market now, and you find a house that meets your needs, have your Realtor go over the comps and educate you on the value of that home (i.e. what prices have done in that neighborhood over the recent years) and then go after it!

Depending on your price range, i have a few homes that may meet your needs. Contact me, if you are interested.

Thanks,
Brian
1 vote Thank Flag Link Wed Feb 13, 2008
Jonathan,

Many buyers are trying to predict the very bottom of this low cycle in real estate. It is almost impossible to do. It hasn't been talked about much here on Trulia but I think it would be very interesting to compare the difference in market price vs tax savings in buying a home now or in 2009 and see how those two scenarios play out.

In working with my clients, I have been able to show that, that for the neighborhood they are looking at that we would have to see another 20-30% drop in prices to make up the difference in the tax base adjustments they would get with buying a home early in the year.

But most importantly, I believe that there is a definite trend back to buying homes with a balance between investment and life choices. I personally never enjoyed renting. I couldn't wait to find a home of my own. But others, are fine with renting and only buy a house for tax and investment reasons.

I believe there should be a balance in the decision to buy a house. Now is one of the best times in quite a while to have choices of homes in the Bay Area to buy, with near record low interest rates, with the possibility of avoiding a jumbo loan, and of course the simple pleasure of owning your own space for the long term investment.

It might be worth a chat with your tax expert, mortgage expert, to see how your personal situation stacks up in this market. You may very well find your window of opportunity is now, even if the market drops another 5% or so.

Good luck, Walnut Creek is such a great area.

CJ
Web Reference: http://www.TalkToCJ.com
1 vote Thank Flag Link Wed Feb 13, 2008
You might get priced out forever so buy now if you can. I am willing to help. Just tell me like what you want and I have an internet site that I can use to see what is on the market.

Great time to buy in 2009.

Making RE dreams come true either for FREE (Buyer) or standard 6% (Seller)! -NNA
0 votes Thank Flag Link Sat Mar 7, 2009
agreed. we don't know what the future will bring. but historically there is an equilbirium between what people earn and can spend. it is math. you can't get away from it. 1/3 of income is the max people can afford for rent/mortgage, in general. so if a house is 1 million; owners needs to make 333K/yr. (gross wages) unfortunately, it seems like that is even too generous. really 1/5 is more ideal. as you pay more for the home, you are also going to pay much more inproperty taxes; something people don't always consider. and property taxes and mortgages may not be fully deductible with wage earners in higher brackets b/c of amt. so a one million dollar home will cost 12,000/yr for taxes. x 10 yrs that is 120K; if invested @6% compounding that reaches around 450K. costing the owner 45K/yr; something to consider. versus someone who paid 220K for the same house paying $2500/yr in taxes. this is why many more homes will go into repo even if owners can afford payments..they will see the falacy in their thinking.
0 votes Thank Flag Link Mon Jun 30, 2008
Prices almost suredly will reset to the standard income/price ratio. It may take a significant amount of time for this to happen since the housing market is not a liquid market. But as significant inventory becomes available such inventory will reflect the market prices which will be set eventually by the cash flow available for servicing the mortgage.

Many individual were able to purchase homes far above thier intrinsic value becasue they were selling homes far above intrinsic value.
0 votes Thank Flag Link Tue Apr 8, 2008
John, you are right. Prices have gone up over the past 10 years without incomes going up the same rate. Most people who live in Lamorinda did not buy their homes in the past 2-3 years. That is why I think it is very believable that the avg income in Lafayette is $120K. The $1.1M homes now were only a fraction of that price 5-15 years ago. However, I don't think there will be as drastic of a decline as you predict, 40%. Lamorinda has always been desirable place for families to move to.
0 votes Thank Flag Link Mon Apr 7, 2008
this area is due for a major correction. prices have gone up 10 yrs straight without incomes appreciating as much. This income/home price disconnect cannot last forever. Something has to give. Look for a gradual 40% decline over 5-10 yrs.
0 votes Thank Flag Link Mon Apr 7, 2008
Lafayette has a median income of $120,000. People cannot afford $1.1 million homes long term. In the short term, favorable lending terms help people to "afford" the home by offering interest only or low initial interest rates. The days of easy loans and terms are in the past. So a return to a 3:1 price to income ratio with 10 to 25 percent as a cash down payment will be the norm for the future. Given the emotional aspect to home pricing - it may take some time for prices to come down.
0 votes Thank Flag Link Mon Apr 7, 2008
What is the income of the average Lamorinda home buyer? It has to be higher than what the statistics say because how else could they afford a 1.1MM home?
0 votes Thank Flag Link Mon Apr 7, 2008
Lafayette, (Burton Valley) is a wonderful place to raise a family. The schools are great, parents participate, crime is extremely low, it's peaceful and a quick commute into the city via BART. We raised our sons in BV (Pre-K thru HS) and will be selling soon to move to our home in the Sierras. Our sons acknowledge a great high school experience at Campolido.
0 votes Thank Flag Link Sun Apr 6, 2008
I don't think prices will be much lower in 2009 in Lamorinda, but I don't think they are going to increase at a rate of 20% per year like 2004-2005 era.

You have time. If you happen to find the right house, then go for it. Let me tell you, its very hard to find the right house... lots of (undesirable) houses have been sitting on the market since last summer. The reasonably priced, desirable houses (good floorplan, good yard, good location) go into escrow within a week of listing with multiple offers at over asking price. Good luck.
0 votes Thank Flag Link Sat Apr 5, 2008
The "Best Time to Buy a Home" is - - - - always - - - Five years ago.

One specific reason not to wait is that, at this writing, the increased FHA loan limits only last till the end of 2008. That may be extended but do you want to count on it?
0 votes Thank Flag Link Thu Apr 3, 2008
Very well said Stan. That applies to Orinda and Moraga as well.
0 votes Thank Flag Link Tue Mar 4, 2008
It depends where you want to live in LaMorinda. Houses on "good streets" and desirable communities (e.g. Burton Valley, Lafayette) still trade very fast and while prices aren't rising they haven't had a dramatic correction either. You might be able to scoop up a bargin by waiting but it is highly unlikely that you are going to see a 30% correction. If you get in now you will certainly have some upside when the overall market corrects.
0 votes Thank Flag Link Tue Mar 4, 2008
A good source of information is the 5 year price trend found at Yahoo Real Estate or Zillow. The median price in 2004 was approximately $750,000. The "easy credit" seemed to cause a dramatic increase in prices to about the $1.2 million level. If the increase was due to easy credit, home prices should revert back to the $750,000 level.

I would rely on unbiased data regarding market prices. When you feel it is time to buy a realtor can be a great resource for finding the right home, but might not be the most objective source for market pricing and timing.
0 votes Thank Flag Link Tue Mar 4, 2008
"One of the hard parts of house shopping via the internet is that you do not get the full picture. " this is true, but without knowledge or latest updates from Internet it would have been difficult to know what 'buyer' do not know or what Real Estate experts do not tell 'buyer'. As Jonathan rightly said, in lots of places the prices are coming down. In San ramon, the Sapell Inc has reduced the prices by 25% from listing and just now closed 5homes. So waiting or pricing to 1990/2003 levels will be best deals in this buyer market.
0 votes Thank Flag Link Mon Mar 3, 2008
The prices in Walnut Creek have really come down. Lamorinda is doing the price cut thing or just letting the properties sit until the listing expires and then some are playing the game of taking off the property and relisting. Very few properties are selling and the inventory is just going up. By the end of the summer, I predict there will be a ton of unsold inventory in all of these areas...possibly double what it is now, and there will be many people who have to sell. This is when the pricing and deal making will get interesting.

The east bay is also officially in a recession with the highest loss of jobs over the past year in the entire bay area...most lost in the real estate and financial sectors (surprise, surprise)

I would wait, unless you see your dream home priced reasonably.
0 votes Thank Flag Link Mon Mar 3, 2008
Susan,
One of the hard parts of house shopping via the internet is that you do not get the full picture.


444 Live Oak was owned by Washington Mutual Bank. These bank-owned properties tend to be in pretty bad shape. I guarantee the previous owner was not putting any money into maintaining the house for a long time before losing the house to the bank.

I currently have a buyer in contract in Alamo, getting a house at a $260 per square foot price. This is absolutely unheard of in Alamo. It is also bank-owned and has some foundation issues, along with some incurable issues relating to the lot. But if you compare this 3,300 square foot house to other similarly sized houses that sold around 2005, you would find the same story. If you compared this Alamo property to what the buyer that lost it to the bank paid for it, you would see the same thing. I have warned my buyer that when it comes time to sell this property, it might be tough because of the land issues.

The real story is the previous buyers of these properties over-paid at the height of the market.
The moral of the story is to work with an agent you can trust to tell you the whole story and back it up with proof. If you are looking to make money in real estate, you need to make it when you buy.

In other words, BUY RIGHT!
0 votes Thank Flag Link Mon Mar 3, 2008
I have been looking to buy in the lamorinda area for the past year. We decided to wait because the area is just now starting to feel the effects of the real estate slump in CoCo County.

I just got this email from another fence sitter on a house that just sold in Blackhawk another desirable neighborhood. If this is a great indication of what is to come...sit still or make offers 30% below list.

http://www.trulia.com/homes/California/Danville/sold/671137-…
0 votes Thank Flag Link Fri Feb 22, 2008
Interest wise this is probably the best time to do it. Market price wise, if you buy in areas where schools are good, your investment will stand out later on.

IMO buy in decent school districts (regardless if you have children or not). Your investment money will go farther than areas with not a great school areas.
0 votes Thank Flag Link Thu Feb 14, 2008
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