It is a great time to buy, considering interest rates, the amount of inventory on the market, and the willingness of more and more sellers to negotiate. And I do tell buyers that. But some buyers have houses they have to sell first and, in today's market, they really ought to sell before committing to buy another property. Other buyers worry that the price declines aren't through, yet. Sure, they can buy a house for $500,000 that would have gone for $600,000 18 months ago. They're worried that the same house will only be worth $400,000 next year. And buyers read the newspapers and watch TV. Yes, there's a lot of overwrought doom-and-gloom. But they can also see that the country appears to be on the verge of a recession. They can tell there's something wrong when American Home Mortgage folds, and Countrywide has to sell to Bank of America. If they track things, they see the Euro has gained 40% against the U.S. dollar, and Ford is no longer Number Two. Some of them are worried about the wars in Iraq and Afghanistan, with Iraq now estimated to cost over $1 trillion. They see petroleum around $100 a barrel. They go shopping and see even the staples--bread, milk, chicken--all way up. They see unemployment jump from 4.7% to 5.0% in one month.
I like real estate. For a lot of buyers, it makes sense to buy now. Absolutely. But there are 101 reasons why buyers are dragging their feet.
Its not just the loss in equity. A 5% drop on the median 470k LA home represents $23,500. For me that is 3.5 months of money that I am putting aside for home purchase. Thats represents a lot of work.
Carrying a 30 year with that added $23,500 adds $27,221.98 of interest payments. With interest rates at historical lows, the odds are that you will not refinance to a lower rate in the future. Buying before my theoretical 5% drop also represents higher taxes on the property and insurance.
A concern is that if it does drop another 5% and I miss the "bottom", if I catch a raise from that bottom within a few percent I am still saving on a lower overall mortgage payment, tax, and interest. The big unknown, of course is the interest rate. With the economy how it is, it is almost guaranteed that the Federal Reserve lowers 50bps on Jan 30th with another 25bps on March 18th.
I know from my perspective that I want to buy, but my wife and I have very particular things that we like and dislike in homes. We've seen so many homes that we are past the "wow" and "falling in love" with a house. Every month we wait represents a larger down payment and has (so far) represented further falling in home pricing.
B.) There will be more inventory.
C.) There's a writer's strike and it's affecting a lot of people in the So. Cal. area
D.) The economy is getting sludgy.
E.) I don't listen to realtors any more than I listen to the media.
Realtors were pushing buying when the market was insane, and they are pushing it now. I'm keeping an eye on the areas I'm interested in, and I feel it is best to wait a few more months.
I do take take Tiffany's point that if the market is going down and you aren't selling you shouldn't care because real estate is cyclical and it will come back. Very true. But why would you be pushing your buyers to buy right now? It's pretty obvious that the subprime effect hasn't rippled through the area completely yet. There are still realtors and sellers pricing too high for this market.
Some prices seem competetive based on what they were 18 mos. ago - but that's not what they should be compared to. Look at 2004 numbers and see how it compares to that. The adjustment is not done yet.
I know agents and sellers are hoping against hope that buyers will be coaxed into spending $800,000 for an outhouse. But buyers know those days are over and are waiting a little while longer until prices drop.
As real estate agents, you have a fiduciary duty to your clients. Not sure how much you know about that, but it is your duty to look out for your clients' financial well-being. Dot--your Burbank client is taking a giant monthly loss.
You can rationalize it by saying that "People buy for different reasons." But if you actually ran the numbers for your client prior to the purchase, and showed them how much more they are paying to purchase, rather than rent a similar place, I highly doubt they would find other reasons to complete the purchase.
It's easy for you, though. You don't run the numbers--most likely because it's not even close. If the difference were several percentage points, it might not make a difference to them. But when your client is paying more than twice as much to purchase as opposed to rent, you would rather be ignorant about the financial analysis behind your clients' purchase, and say, "That's real estate. La-Ti-Da!"
If I am making an incorrect assumption, and you actually told them about that differential, please let us know.
Jordan--that analysis of Gross Rent Multipliers would deter any informed and prudent buyer from purchasing properties at anywhere near current list prices in your area. That is another great reason for buyers to drag their feet.
Market ran up because:
1. Easy credit since 2001
2. Low interest rates
3. Zero qualification checking by lenders
5. Realtors, mortgage brokers sold the idea of the "American Dream" to people who shouldn't be in houses
6. Large number of people took out unaffordable mortgages not just the buyers in the Inland Empire and RIverside
Why are buyers dragging their feet? ( I am one of the buyers by the way)
1. Lenders tightening up their quidelines
2. The only way to buy in CA is with a Jumbo loan unless you have a downpayment, currently banks are restricting that activity
3. Incomes in CA do NOT support a median of 500K, or 400K, or mid 300K, I am sorry but 70K income does not support any of these prices.
4. Ref-is with money out to support lavish lifestyles in Los Angeles do not indicate wealth
5. 80% of loans in CA during the last 2 years were ARMS and Option ARMS, largest number of resets on those are coming in 2008, get ready for an even worse market this year
6. Investors lost their appetite for Mortgage Backed Securities, Wall Street says NO THANK YOU, hence lenders will not be offering ridiculous 700K mortgages to people making 20K.
7. Smart money (people who are not buying at this moment) will be waiting until prices get inline with fundementals, meaning incomes supporting prices, so for you real estate brokers, tell those sellers to keep dropping their prices and not to expect what their neighbor got in 2005-2006
8. Inventory is climbing
9. Sales are down
I am not sure how many more reasons I need to list to provide evidence of why buyers are dragging their feet. If you have not caught on yet, the media will make sure you catch on very soon as they keep pumping out article after article regarding the state of Real Estate in this country, and I don't mean NAR, they are full of it. I have a condo next to me that's down almost 200K and foreclosed since last January, in a 2005 building, and there are many more that I have been monitoring that just keep dropping prices. Another building next to our block has been on the market for over a year without a single sale, and price drops of 400K and still not a single sale. Meanwhile there are 3 more building being put up on the same block. This market is going down and down hard, I expect 2001 prices if not lower.
But the reality is that it is never urgent to buy.
Suppose you say that now, April 2008, is absolutely the right time to buy and it is urgent.
If you say the same thing next month, that makes you a liar.
In fact, the opposite could not be far from the truth. When searching for most goods, the longer you search, the more likely you are to find a better deal. The only time this breaks is during irrational bubbles, when it is in fact buying early is the best outcome. Unfortunately, most people end up as losers during bubbles.
I can make a very good argument why it is better to buy in 6 months than now. In 6 months the prices are going to be lower than today, in most of the country, for most properties.
You should offer again $350K. Put a footnote in the bottom (offering price reduced by $5K to account for past stupidity).
1.) We could afford it on our income
2.) Our loan was a 30 year fixed at a low interest rate
3.) The neighborhood is nice
4.) the schools are exceptional
5.) Close family
6.) No plans to move for the next 12 years
Lenders are stricter about who can buy. You can't even get 100% financing anymore and unfortunately, for our country, people don't save so you have less buyers. Even CALHFA won't loan you 100% without the borrowers having a 680 FICO. Private Mortgage Insurance companies won't sign off on risky loans either.
There are some buyers like us who no way in hell were going to purchase a home that is 5-10 times more than our income, no matter how hot the market was. Until the market becomes more in line with incomes, you'll still have people holding out. Even if they wanted to, with the tighter restrictions, doesn't mean they will find a lender who will approve them over their income.
Would a realtor advise someone making that much it's a great time to settle down in compton? Probably would, but common sense would tell you to wait for prices to return to normality.
And just question for all realtors, when is not a good time to buy? What exactly does that look like?
I think it's refreshing to see buyers hold off on buying now because of the almost certain equity drop--nobody knows for certain they won't need to sell in a year or two.
Another point I see bandied about a lot is media bashing for the price drops and the current state of the market. Nobody was blaming the media when prices were going up 20% yoy and the current crisis was building up. Newspapers and TV news were talking about record prices all the time, on the front page, just as they are talking about the market now, on the front page. It's a little too convenient to blame the media.
A lot of us could see the current mess coming from a mile away, and got out of the market before it imploded. It doesn't take a PhD in economics to know when something's fishy and unsustainable. Getting burned hurts, but I don't really see very many victims here.
(note: these are my opinions, I'm not talking on behalf of Trulia or anyone else).
I believe part of that attitude comes from the always upbeat "its a great time to buy" attitude. Everyone knows that homes have run up to levels that are out of line with historic trends. So while the pricing has dropped, it doesn't mean that it is in line with the normal trend line. Lets not forget Lawrence Yun and the continuous revisions related to sales and what seems to be his expectations that "this month" is the month it all turns around in. He hasn't done any great service to the public perception as it relates to Realtors. He's been singing that tune since August 2006.
The only item that I would take exception with was when Tiffany stated "People will always need to sell, and always need to buy no matter what the market looks like, and no matter where the majority of people sit in terms of their opinions on the market."
The first part is correct that people will always need to sell; people will not always need to buy. When rent in many areas is far less than what a mortgage would cost, it would be better for many people to rent instead of buying. Inflation adjusted, housing traditionally has less than a 1% return on it. I doubt that many people that get comission off of real estate espose renting over buying.
What many people would save by renting instead of purchasing a home that is currently overvalued could easily be invested in a low risk fund and still outperform the historical return rate that you get on a home. A years interest on a 417k mortgage is ~$24,880. Take away your standard deduction of $9,500 and you have ~$15,380 that can be written off. Depending upon your specific situation that could be beneficial. Of course, if your retirement still needs funding, that 15k could be a really nice 401k/IRA contribution that you would get tax benefits also.
Every persons situation is going to be different. In many ways renting will always make more sense; except it doesn't fulfill that "American Dream" that many, myself included, have. We want a space to call our own. From a strictly financial standpoint, I know that I should probably keep renting until homes come down quite a bit and take that extra money to fund my retirement more. I would say the sweet spot would be when a 30-year mortgage + tax + insurance + maintenance is less than 30% of your gross pay and the loss from interest, tax, insurance, and maintenance is less than rent on an equivalent place and you plan on staying put for 10 years or more.
Realtors may be knowledgeable on current and past prices for their area, but they are NOT experts on future price trends. Realtors are NOT economists and very few have any business or economic training to speak of. They are SALESPEOPLE. The reality is that they only get a commission if you buy, so they have an incentive to be less then accurate as to their assessments. The few competent Realtors with integrity would admit that prices are going down and most buyers could save money by simply waiting for the bubble to further deflate.
Apart from a few â€œthe world is flatâ€ realtors, everyone realizes that prices are falling and will continue to fall for the foreseeable future. Those that are expecting a quick turn around from this bubble are dreaming. The last cycle took about 11 years to reach peaking pricing from the previous peak. Here are your Los Angeles County vanilla medians between 1989 and 2000: http://www.laalmanac.com/economy/ec37.htm
In the early 1990s, there were price drops in ALL communtities, high end, low end, beach, inland, condos
Pretty amazing, someone who purchased the â€œmedian homeâ€ for 214,831 sold for 215,900 11 years later. However, this bubble appears even larger that the 1989 run up, as depicted in the following graph: http://latimesblogs.latimes.com/laland/2008/04/where-we-stand.html . Granted prices are falling faster, so perhaps we can reach a bottom faster.
In my opinion this would generally be a terrible time to purchase. All leading indicators are pointing in the same direction as to the southern California market, (i) inventory has increased, (ii) sales transaction volume has slowed dramatically over the past couple of years, (iii) lending standards have tightened (pulling thousands of potential buyers from the market), (iv) notices of defaults and foreclosures are at records levels, (v) the economy is slowing (looking more and more like a recession and possible a deep one), (vi) literally thousands of high paying mortgage and other real estate related jobs have been lost in southern California over the past year and (vii) the mania which surrounded the real estate market a few years ago has been replaced by a conservative caution steering people to other investment classes. All of these things will put downward pressure on pricing for some time to come.
The reality is that residential prices will almost certainly be lower later this year, likely lower in 2009 and possibly even lower in 2010. Real estate cycles take many years to play out and we are at the early stages of a down cycle.
With that said, if someone can find their dream property and can purchase with a large down payment and conventional financing and they don't care about prices dropping further, they should consider the purchase. But in this market they should NOT purchase with the expectation of future price gains for a long time. If history is any guide, prices will not rebound quickly when the bottom is finally reached.
Best of Luck,
Not only are you correct about that, but of the homes that ARE listed, when we put in offers we find out many are not really for sale.
Congrats on being the three-hundredth response!
Thank you for noting the Coldwater Canyon price drop. I previewed this house a few months ago when it was listed in (or near) the 900k range. I am going to send you a private message with my thoughts on the house as I don't find it ethical to discuss my thoughts with the possible Seller/Listing Agent/Buyer participating on this site.
I am responding to your most recent comments collectively. I feel as though many of your statements are blanket statements about why one should or should not buy or sell, not taking into consideration the various specific needs that individuals face. You appear stuck on the fact that Realtors as a whole are in the profession only to make money. As I'm sure some are, I believe the great majority are not. They have chosen this profession because they enjoy it; they enjoy working with people, helping people. Many Buyers and Sellers choose their Realtor because of familial relations or trusting referrals. In my business, it does not behoove me to misguide a client because there is a dollar sign at the end of the road. The happier my clients are after the sale/purchase, the better the chance my past clients will refer me new clients.
I feel the need to respond to your statement, "Let's just be honest about it .. 2 years ago when it came to making a $15,000 commission or telling the client the property was priced $95,000 over market, the commission won".
There is a reason Realtors have a place in the housing market. One of the reasons is to assist Buyers in making an educated decision about their future purchase. Everytime I sit down with a Buyer who has decided to write an offer on a property, I show them the comparable properties. I show them the properties that have sold in recent months in their area that match the specifications of their future home, I show them the properties that are currently in escrow, and I show them the properties that are currently for sale. With this information, the Buyer is aware that they are placing an offer that is either below the current market value, near the current market value, or above the current market value. It is then the decision of the Buyer, and the Buyer alone, to submit the offer or not. You seem familiar with the process Tman so I am sure none of the above is new to you, but the content of your comment surprised me.
Thanks all and have a great Wednesday!
~ jordan elias
Buyers frequently questioned, "What should I bid?"
My answer was, "Here are the comps; we reviewed them. You are bidding over the ask price, it might not appraise up. If you lose the property, are you OK with that? Or, is it worth it to you to bid higher? If it does not appraise up, you will be overpaying, for sure...but only you can decide it that is worth it to you."
Will prices go down further? Is the bottom in my rear view mirror? I really have no idea, but I know I can't make these prices... and if they don't come down, I'll move. In Miami, the same $500,000 that gets me a fixer-upper here buys me something with an ocean view...
When you own, your landlord cannot evict you.
When you own, you can keep pets.
When you own, you can make changes.
When you own, that principal part of payment that is not interest pays down the mortgage, if you stay there 30 years without using it as an ATM you will own it free and clear!
Rents rise with inflation, over the very long term. Your purchase price is established at the time of purchase. You do not face rent increases if you stay in the same house have a fixed rate mortgage and payment, do not refi cash out;
Your property taxes, maintenance costs and insurance will go up. but not as much as rent will (again long term )
There are currently tax incentives that favor owners over renters.
Interest paid on a home mortgage is deductible from income, this results in lower taxes for homeowners than for renters. It is in effect a federal and state tax subsidy to own.
Wealth gained from owning a residence and experiencing appreciation is currently exempt from income tax up to $250,000 per person of $500,000 per couple. ( See your tax adviser for details )
This is also a federal and state tax subsidy to own
So expecting a 1 to 1 correlation just would not work. The values, though, are loosely correlated, as
the benefits I listed above are substantial, but they are not infinite.
While an informed, analytical renter who can afford to may gladly exchange a $1200 per month rent for a $1600 per month mortgage due to all the added benefits and subsidies of owning, doubling the monthly housing cost is harder to justify, the buyer must then be factoring in very long recapture times and or assigning significant value to the non-economic benefits. Tripling the housing cost is probably impossible to justify on economic grounds.
However, even at triple or quadruple of rent, some benefits, amenities, some luxury features may only be available by purchasing owner occupied housing. Think country estates, suburban mansions and city penthouses.
The values are more closely correlated for the lowest priced homes, unsurprisingly these appeal most to investors. Lower income citizens do not gain as much from the tax subsidies as higher income citizens so there is less financial incentive for renters at the lower end to make the switch.
This concern is increased when you look at the large amount of foreclosures that make up the current listings as well as what the Option-ARM reset horizon looks like. If you haven't read the web site Calculated Risk, I would recommend it as well as their analysis found at:
I think your's is a fantastic question. I'm experiencing the same difficulty as you with my buyers.
I ask them how they'll know the market has hit bottom. The usual answer is when the media tells them - that is after supply dwindles & prices rise. I ask what they think a particular house that they likewill cost at the bottom of the market & suggest they offer that price now - ooh I'm gonna get a few thumbs down for that one.
I hope to hear what how other Realtors are working their magic in this puzzling market.
Pretty amazing, someone who purchased the â€œmedian homeâ€ for 214,831 sold for 215,900 11 years later. However, this bubble appears even larger that the 1989 run up as depicted in the following graph: http://latimesblogs.latimes.com/laland/2008/04/where-we-stand.html . However, prices are falling faster, so perhaps we can reach a bottom faster.
In my opinion this would generally be a terrible time to â€œinvestâ€ in real estate, unless you must buy now (because of a 1031 exchange, for example). All leading indicators are pointing in the same direction as to the Los Angeles market, (i) inventory has increased, (ii) sales transaction volume has slowed dramatically, (iii) lending standards have tightened (pulling thousands of potential buyers from the market), (iv) notices of defaults and foreclosures are at records levels, (v) the economy is slowing (looking more and more like a recession) and (vi) literally thousands of high paying mortgage and other real estate related jobs have been lost in southern California over the past year. All of these things will put downward pressure on pricing for some time to come.
The reality is that prices will almost certainly be lower later this year, likely lower in 2009 and possibly even lower in 2010. Real estate cycles take many years to play out and we are at the early stages of a down cycle.
With that said, if someone can truly afford the home with a large down payment and conventional financing and they don't care about prices dropping further, they should consider the purchase. But they SHOULD NOT purchase with the expectation of future price gains for a long time. If history is any guide, prices will not rebound quickly when the bottom is finally reached.
In general, we, as buyers, are hit almost daily with bad news on the housing market. This in turn does not provide the most stable confidence in making one of the biggest investments of our lives. We listen to the news and think, perhaps foolishly, that they are telling the truth.
In addition, I have seen so many homes over the past few years and talked with tons of agents at open houses who all say the same thing "this is the best time to buy!" The problem is that they (agents) have said this consistently throughout 2006,2007, etc. So, I feel as if there is a credibility issue with agents in general. I know it's their job to sell, but I have spoken to a few agents who almost refuse to admit the market is in trouble.
Lastly, I think some of us buyers are put off by seller's asking price and unwillingness to consider offers below asking. We offered $405k on a asking price of $410k and the seller counted with full price. We laughed and moved on. Last I saw, the house was still on the market for $389.5k.
Realtors may be knowledgeable on current and past prices for their area, but they are NOT experts on future price trends. Realtors are not economists and very few have any business or eoncomic training to speak of. They are salespeople. The reality is that they only get a commission if you buy, so they have an incentive to be less then accurate as to their assessments. The few compotent Realtors with integrity would admit that prices are going down in Southern California and most buyers could save money by simply waiting for the bubble to further deflate.
Although the realtors on this site will attack me for the following comment, in my opinion this would be a terrible time to buy, unless you must buy now (because of a 1031 exchange, for example). Inventory has increased, sales transaction volume has slowed dramatically, lending standards have tightened (pulling thousands of non-qualified buyers from the market), notices of defaults and foreclosures are increasing substantially, the economy is slowing (looking more and more like a recession) and literally thousands of high paying mortgage and other real estate related jobs have been lost in Southern California over the past year. All of these things will put downward pressure on pricing for some time to come.
The reality is that prices will almost certainly be lower next year, likely lower in 2009 and possibly even lower in 2010. Real estate cycles take many years to play out and we are at the very beginning of a down cycle.
I disagree with many realtors who say that it does not matter what price you pay if you are looking to hold on for the property for 5 to 10 to 15 years. Let's say you buy now for $1,000,000 and prices drop 20% (actually, Forbes in a recent article estimated a 26% anticipated decrease from June '07 prices by 2010 for Los Angeles and Orange counties) over the next couple of years. You would have lost $200K in future equity by having not waited. Additionally, you would have to service the $200K by paying property taxes and interest on the $200K. Unlike a stock, when you buy at the wrong time, you need to service your hasty decision through increased property taxes and interest.
I have an MA in Economics from USC and have been in the real estate business for 15 years. In my opinion, this real estate bubble will take many years to play out. The previous down cycle was from 1990-1996 and values dropped approximately 20 - 25% in nominal pricing (40 - 45% in real numbers when factoring inflation). The 82 -85 down cycle was a bit shorter. However, that was a period of higher inflation which masked much of the decrease in real prices.
With cash in hand, time is your ally. Unlike stocks which are very subject to dramatic short term fluctuations, real estate is illiquid and cycles move slowly. If you are paying attention, you likely will not miss the change as prices tend to remain flat for an extended period flowing stability in the home market. Clues will be increasing transaction volume and a closer cost ratio in comparing the costs of renting versus owning. Simply stated, following a down cycle, people are generally more conservative in real estate purchases so prices will not likely rebound quickly.
Despite what the spin doctors at the NAR and realtors would like the public to believe â€“ it is NOT always a good time to buy.
With that said, if someone has sufficient assets, they may not care about whether your home decreases substantially in value and there are benefits from home ownership. But, in my opinion, there are ample rental opportunities to wait out the deflating real estate bubble.
1. It is clear as day that prices are going to keep going down for some time. Here in California, we are just getting under way. Pay Option ARMs will be detonating for the next several years. That's going to make the subprime impact so far look like a walk in the park.
2. Don't blame the buyers, blame the SELLERS. They are absolutely unrealistic in their pricing. My wife and I put an offer down on a home last December. The home had been sitting a couple months, and had already taken $50k off the original list. We made an offer about $30k below the revised list. The seller countered with a number that was too high, so we walked.
Guess what happened: The seller had to take another $50k off the list before it sold (and even then, I bet it sold for well under the second downwardly-revised list).
Had the seller accepted our offer (and boy is she sorry she didn't), we would have seen a good $40k or so of our equity wiped out in a matter of a couple months. Getting our offer rejected was like getting shot at and missed. I will never forget that.
Keep watching as the sellers chase the market down, and buyers sit on the sideline. I know we will, unless we come across the perfect house and it's well-below market price. We can wait and wait and wait, because our rent is cheap. So we will.
When did a having a lock-box and a clean car make anyone a market clairvoyant?
I'll never convince some of the hard-core KoolAidâ„¢ drinkers here about where the market is at and where it's headed, but for those who can keep up (like Trulia Roger, who I suspect has some miles under his belt and can be at least forthright)... here goes.
When you compare the fundamentals of the GDP to Housing Valuation here's what you find: In the early years GDP lived above the housing valuation 1945 to 1985. From then on Housing Valuation began to leap ahead of the GDP. For those around back then, you'll remember that year we were still recovering from a recession which began in July 1981 and ended in November 1982. From 1985 the price of homes began to climb, and climb until a quick bubble formed and burst in late 1989. The comparison between the GDP and HSG stalled, but the HSG never fell below the GDP. Since then the HSG over the GDP has grown exponentially. Last numbers I have are from 2nd Quarter 2007 where the value of homes, in the US, was 21% HIGHER than the total market value of all final goods and services produced within the USA.
What does that mean? The GDP is one way to measure the economy. We all live in the economy, we are tied to the economy by our wages, employment, manufacturing and the cost of goods. When the cost/value of homes out paces the economy... it a BAD thing. That means there is no fundamental support for the increase of homes at that rate.
I don't know if anyone has checked lately but the economy is in tanking FAST, but some here would like us to believe that 21% higher HSG is the norm and perhaps 'we've hit the bottom'. Oh yes! Lemme see? The housing will turn around and the economy will fall. What are you expecting? HSG to go 50% higher than the GDP?
What are you smoking?
Did anyone watch CNBC on Friday? Do you know what the DOW futures are indicating for monday?
Hands up which realtors told their clients that there was no housing bubble when asked?
Hands up which realtors told their clients in 2005 how well prices had been going up in the last 2 years?
Hands up which realtors said the market was going strong in 2006 with expected continued growth?
Hands up which realtors said the market was leveling off for a few years in late 2007?
Hands up which realtors said that 2008 was going to bounce the market back in the black?
Which of you now are saying that things will pick up this summer?
Oh, no need to ask I can see your posts.
What will you say in 2009?
"Wow that real estate lark was really cooking for a while, thank god for my brother-in-law, otherwise I'd be unemployed".
I'M TELLING YOU THERE WILL BE A -33% CORRECTION ACROSS THE BOARD.
Here's another way to look at it. Let's pretend your house is a stock on the NYSE. Anyone who has bought shares knows that one of the key indicators is the P/E ratio. That's the Price to Earnings ratio. A house has a price to earnings ratio too, it's... "How much can I rent this house for?" vs. "How much does it cost to buy this house?" The end result is the same, you get to live in the house. The last time I checked, in my area, the yearly cost to rent a house was 3% of the purchase price. Mortgage rates for a jumbo-loan (aren't they all?) is around 6.87%. I don't have to point out... that's more than double. I'm keeping it clean by not dragging in tax, insurance and maintenance, because I think property is a good investment (when done right).
The intrinsic value of homes is out of proportion with market index indices. The market is falling because it was propped up by the liquidity pumped in by the mortgage bundles being passed around. Those are gone and being foreclosed and there are no more to take the place.
You may not have liked what I did to Jordan, but he deserved it. This isn't a frivolous game here. A house is not a commodity for most people, it's a place to live. 30% of the agents here on this board won't survive the next 3 years. The houses will sill be standing and the people who bought them will still be living ... somewhere. It's a good thing to remember, because you're in the SERVICE INDUSTRY, your job is to service the clients not pull the wool over their eyes, or pretend that you have ANY idea what you're talking about when it comes to the housing market. There wasn't a chapter in the Real Estate Course called Prognosticating The Future Of The Housing Market... was there?
Stick to what you know. Brush your teeth, clean your car, be punctual and remember those lock-box combo's.
One last thing, if you go back one page you'll see JR from New York called me a 'jealous drive-by troll'. This is the friendly guy who steps out of his over-detailed car, strides over to greet you with a big handshake and smug grin. Lot's of winks, nods and assured smiles. Back at the office... "Hey John, what about that couple interested in #564?"
"Nah. No offer, they're just a bunch of drive-by trolls.
Typically, when prices have been lower in the marketplace, interest rates have ben higher. When interest rates were lower, prices were rising. Right now, both are low.
We will only know the "lowest" once it is behind us. Whether you are buying real estate, collectibles, or stocks......one never has a crystal ball to know, for sure, what the lowest or highest point will be. We study cycles, trends and other factors to make the best informed decisions that we can. There are savvy investors and careful consumers are perceive this as an excellent time to buy. And, there are many who will not buy now, and, in the future say, "I should have ......." or "I could have......"
Looking back at a 50 year history, name 3 times that were "good" to buy real estate, and compare this time period to those.
Jordan, thanks for an interesting thread. There isn't a reason to respond to individuals who are unable to articulate without resorting to the inappropriate use of "my friend" and "dude" and "go back to bussing tables." Sharing a differing viewpoint on an open forum is educational and stimulating. Responding to personal attacks is a waste of time.
Thank you for joining the fun! As I do not agree with your analysis of my career, I will respond:
If you track my questions and answers on this site, you will see that I've never asked any potential client to "give me a call". If a future Buyer or Seller wants to use my services, they are welcome to send me a message or call me, but I am not pushing my services on any potential client here.
In regards to your comment: "Jordan are you saying one of the hottest sales teams, 'TEAM SQUIRE' under Coldwell Banker the Valley have hit a brick wall? Are you guys out of ideas?"
No. We've been busier in the last 3 weeks than the whole 3 months prior - including 3 closings and 5 new escrows (all Buyer representations). There are many Buyers who recognize the value in the current market, and for them it's a good time to buy.
Regarding this comment: "My friend let me help you. Go back to bussing tables on Ventura Blvd, you don't have what it takes..."
Do I know you? I did work at a bar/lounge on Ventura for a time... And I'm not sure why you don't think I have what it takes. Any specific reasons?
I agree with your statements regarding the fairly relaxed qualifications to earn one's CA Realtor's license. Fortunately, the DRE (Department of Real Estate) has recently passed regulations requiring one to obtain a certain amount of college level units in classes related to business and finance before being able to take the CA Realtor's exam. I believe there are many Realtors who are under-educated and selling real estate in California, and hopefully the new legislation will help to weed those Realtors out.
Regarding this comment: "Real realtors are too busy selling houses to be wasting time on this site. Jordan?"
I was about to leave the office at 7:15pm tonight (Friday) when I saw your comments and figured I should respond. And I will be working tomorrow and Sunday as well.
*FYI - for those traveling on the Westside this Sunday 3/2/08, don't forget about the LA Marathon or you will be stuck in a lot of traffic!
About these comments: "I have bought my last 2 properties WITHOUT A REALTOR. The law doesn't require you use one. Wake up people these guys are middlemen/women read their posts, they are disengenious, uninformed, veiled and plain dishonest. As I've shown by lifting Jordan's skirt. Read his profile... then read his question. Now ask yourself... why would he be asking this question?" Congratulations on your last 2 purchases and true, there is no requirement to hiring a Realtor to buy or sell property. My job consists of an average 50-60 hour work week, working 6-7 days a week (that is by choice), and I am able to fill those hours working for my clients and working to find future clients. Regarding the "disengenious/dishonest" part of your comment -- why would I put something on my profile if I didn't expect users to view it? I pride myself on honesty, and yesterday I actually talked a potential Seller out of selling her home in this current market because she would not make a profit at this time.
In the end, I do what I do because I enjoy working with people and helping them through a tricky and potentially nerve-wracking process. You don't have to employ my services sir, and you don't have to like me. That is your choice, but I do ask for a little more courtesy in the future.
Thank you and have a nice weekend,
~ jordan elias
to their buyers why now is a great time to buy in L.A., pass it on! Thanks!!
This has to be the most thinly veiled attempt to let potential buyers, sellers and other realtors know that this chump believes he has his finger on the 'pluse'. Further reading dissuades any doubt that this 'realtor' has no idea what he's doing. This is exactly the kind of realtor I've fired many times in my purchases, both investment and SFR.
Personally I'd avoid a 'realtor' like this.
First, he has no idea if the market is hot or cold. WORSE. He can't seem to find the 'correct phrase' to nudge an uninformed buyer into the casm of negative equity. Hey! Can any other realtor help him out there with some really awsome metaphor/analogy/skewed numbers right from the desk of Lawrence Yun? Hey Jordan how come you don't ask your 'experienced partner' Jason Squire?
Perhaps the reason you're having trouble convincing buyers to 'jump in with both feet', is because your initial premise is faulty, no... make that completely wrong. So much so that even uninformed buyers aren't buying they typical realtor BS you normally shovel.
I'll tell you why, because it's a dishonest premise. Jordan are you saying one of the hottest sales teams, 'TEAM SQUIRE' under Coldwell Banker the Valley have hit a brick wall? Are you guys out of ideas? Here's a thought... start being honest with the sellers and buyers, then you won't have to make up something to bridge the gap.
My friend let me help you. Go back to bussing tables on Ventura Blvd, you don't have what it takes and believe me, if you're feeling the pinch right now... just wait. It's going to get a whole lot worse. Dude, you've been doing this gig for less than 2 years. The most lucrative years in real estate history. Things are going to get nasty and if you and Jason go cold, don't sell enough homes, Coldwell Banker are gonna give you guys the boot to make room for experienced realtors who know how to close a deal.
I signed up just to set the record straight. There is a course online that you can take, for $69 that prepares you for the Real Estate Exam. I have close friends who have taken the exam and they say it's nothing compared to 2 years of undergrad, 3 years of work experience (needed) and 2 years accelerated studying needed to get my MBA.
I see you can study all you need for the RE exam in 2 months! Any idiot can be an agent
What I find humorous is how so many realtors snuggle up to this site hoping to raise their profile hoping to seem knowleageble and POSSIBLY pulling another hapless client. The reality is, that this site, and others like it, is the death knell for all the marginal realtors (everyone here included).
Real realtors are too busy selling houses to be wasting time on this site. Jordan?
The NAR's days are numbered, within 10 years, seller and buyers will be dealing with each other directly, as they are already on this site. Everyones happy and back-slapping when everyones making money. Things will turn nasty, as they are when people LOOSE money. Homeowners will look at those involved.
The Real Estate Agent
The Real Estate Broker
The Mortgage Broker
The Mortgage Bank
I have bought my last 2 properties WITHOUT A REALTOR. The law doesn't require you use one. Wake up people these guys are middlemen/women read their posts, they are disengenious, uninformed, veiled and plain dishonest. As I've shown by lifting Jordan's skirt. Read his profile... then read his question. Now ask yourself... why would he be asking this question?
It is counterintuitive that owner occupants would bail out of their homes solely because of negative equity.
If I can afford my house payment, and it provides me with a place to sleep indoors, and it is close enough to where I work and send my kids to school, why would I bail? If I bail, I will have to pay for moving and storage and then go find and rent another house. Then I will be paying towards the landlords mortgage.
Ironically, the new landlord (if leveraged) is more likely to bail than the owner occupant, so I might just might become a serial customer of the moving and storage company.
Even if I save a few hundred a month on rent instead of a mortgage, I have foreclosed off all possibility of gaining on the equity of my former house if and when the RE market rebounds. ( pun intended )
I do know an owner occupant who bailed on his new house in order to move back into his lower cost, higher equity old home.
I think very few people would throw their residences away if they really could afford the payments, maintain their lifestyle, and look to the long term 5 or six years from now when they are "right side up" on their houses.
Landlords and speculators, sure, they will walk. It is possible that some of the specs are mislabeled as owner occupants because that is how they fraudulently obtained their loans in the first place.
In my area, prices are plummeting, and houses are coming on the market faster than popcorn pops.
Some are good enough deals, but many are put up by desperate sellers who have not yet come to grips with the reality of the new conditions. The house that they counted on to provide half their retirement isn't going to provide a third now, and they're digging in like it's a siege.
You can't blame them, either. This change came on so quickly it's a shock, but the reality of home valuation is a fact they cannot deny. "If only I'd sold 8 months ago", is a common plaint.
Seeing an asking price drop $30 or $40,000 in a month is commonplace. REO's and HUD offerings are going wild. It's rather like waiting for a 'sale' at a retail store. I can wait for the savings. Maybe I'll buy next month... or the month after.
After all, how much corporate owned property can any given institution hold before discounting it deeply, cutting their losses and moving on? And the bitter attitude of banks and so on isn't helping. They're annoyed and sometimes downright hostile!
Inclusions in ads like (quote) "Buyers Must Be Pre-approved By Countrywide Home. Corporate Addendum Supersedes Local Contract", do not particularly dispose me to deal. Before you start making rules, mister bigshot, you might want to make sure there's a game.
Also, has the market bottomed? If I commit now, will I watch the value of my new home drop another 10%? 20%? That doesn't sit well.
Finally, the character of entire neighborhoods is changing. There are a lot of foreclosures, and some angry losers are taking out their frustrations on their ex-properties. Smashed windows, destroyed kitchens, landscaping, air conditioners and even garage doors torn out by the roots and sold and suddenly a peaceful, idyllic street is looking more like Baghdad...on a bad day.
Will they recover their former glory or become low-end ghettos populated with Bumpuses and meth labs?
Technically, it is a buyers market. Realistically, there are pitfalls enough to scare the willies out of us poor folk who are just trying to find some decent shelter with a potential upside, while not losing our backsides!
As far as "THE SKY IS FALLING", let's talk buy low sell high, I would rather rent then buy. I will buy when "I FEEL" the price is right, NOT because it will come back sometime in the future and because you say it will come back. Instead of plunking a 20% down on a property today, I can rent for a fraction of the cost, and buy in a year or two, when I KNOW that prices will be lower. If you want to buy now, then do so and sit it out, I will gladly use this opportunity to generate income off of my down payment instead of once again "HOPING" it will come back.
Basic money management.
I also use the Market Conditions document with my clients that is made available through the CAR (California Association of Realtors).
John, I see that you are an attorney. You've studied the real estate market so much you should go for your brokers license - they go hand in hand. Apparently, Realtors are hated almost as much as attorneys!
Don't be so quick to judge what I or any of my colleagues are doing until you have all the facts. And don't assume that buyers are uneducated idiots.
I see that instead of having a good dialogue and expressing differing opinions this has turned into a finger-pointing accusation session. I will now respectfully bow out of this discussion - I don't see that it is fruitful for anyone.
I agree with Dot, and as I have said before, no one is saying that buying is the right decision for everyone right now. Each person has to take their own situations into consideration. If you reference a few of the first comments I made below, you will note that I have never said it is a hot market and that everyone should buy, I simply said we are here to help educate our clients beyond what they might already know, and then if it is their desire to buy, then I would love to help them.
In reference to what my clients have purchased and what the values are now etc. - I truly don't think it is necessary to go into that - nor is that everyones business, I am sure my clients wouldn't want me openly giving that to everyone! Sure some people I have helped over the last year or so, have lost some money, but some haven't - and for the most part, every one of them have said it doesn't matter where prices are going, they are happy with their decision and they know they will be there for a long time so it doesn't really matter to them (reference my below comments on this being a long term investment, not a short term investment).
I am currently helping several buyers look for homes/condos in this supposed "terrible" market. They have all decided that right now is the right time for them based on a variety of different things. Here in Orange County, for example, I am helping a buyer right now look at condos and she has found several that she liked, and unfortunately all were gone and in escrow within a few days. So - things are selling, at the right price, to the right buyers, who are buying because it is the right time for them. If you don't want to buy - don't buy, no one is telling you to do what you don't want to do. I am not suggesting you should buy no matter what your opinion, circumstance, or market condition.
I think I speak for all the agents when I say, this may not be a terrific market, but we are all here to help those that desire to purchase or sell something - because no matter what the market is like, there will always be people who need or desire to sell, and people who need or desire to buy. (By the way - there ARE buyers that NEED to buy, i.e. 1031 exchanges etc.)
I hope this is a sufficient response, I will be removing myself from this discussion going forward. I think no matter what anyone says - everyone is going to have an opinion, and at the end of the day - it really doesn't matter what I say, you will think what you think and that is OK. I have never told someone they are wrong - everyone has to come to their own conclusions.
I have had a great time reading everyone's response - I wish you all well! :)
I am by far, not a "car salesman", thank you. I take offense to anyone who would look at what I do as trying to trick people into buying a home because I just want to sell something, or that I just twist peoples arms to get a deal! I have a B.A. in business administration and in addition to that have taken a variety of educational courses on real estate in order to know what is best for my clients. My goal in real estate is to help my clients achieve their desire and dreams of being a home owner, and hopefully in that process make clients for life. Not all real estate agents are out to get you into anything and everything just to get a paycheck - there are a lot of them - but I at least know I am not one of them. So for future references, lets not stereotype..it's just no nice. ;)
People will always need to sell, and always need to buy no matter what the market looks like, and no matter where the majority of people sit in terms of their opinions on the market.
My point is, each person, good market or bad has a time when they feel it is the right time for them to buy and/or sell. No one is saying to buy or sell when you don't want to, we are just saying to make sure you educate yourself fully by using a variety of sources. Why wouldn't you want to hear the advice of someone who deals with this day in, and day out?! This is what I live and breath, not what I dabble in and check in on from time to time.
Lastly, for the record I never said it was the medias "fault" that people were not buying, I simply said that as agent's we need to make sure we do our due diligence in telling prospective buyers and sellers intelligent information on the market other than just the panic that the media is trying to display. Of course this is not a "terrific" market, but whether or not it is the right time to buy or sell depends on your situation! Each persons circumstance is different when buying and selling real estate. Lets face it, you have got to be super naive if you haven't figured out yet the media's capability to blow stuff massively out of proportion - not just real estate...and when the majority of us think media, we think the news...not trulia.com
Again, if you are going to buy and sell in a couple of years, then yes - be afraid, and don't buy. However, if you are looking to find something for a great price, and keep it for several years, then "watching your equity be reduced" is a mute point. You haven't lost anything until you go to actually sell.
People who bought in the 90's when the market was terrible, were singing a happy tune when the market sky rocketed in the 2000's. They predicted it would never turn around - "couldn't" turn around. The people that kept their investments made a ridiculous profit in spite of the media and everyone's opinions.
The point to be made is if buying is a long term investment for you, which it should be, then when you buy really deosn't matter.
There are several transactions that both myself and other friends of mine in real estate have closed where the buyer was able to get around (give or take) 10% off the asking price of an already reduced and under market value home simply by negotiating and finding the sellers that were willing and able to negotiate( i.e. they had enough equity in the home, or they were in distress)!
When buyers tell me that they are waiting until prices continue to come down, or they are waiting for the market to "hit rock bottom" I always then ask, how will you know when the market has hit rock bottom? Furthermore when you (the buyer) know that the market has hit rock bottom, do you think the sellers will know that as well, and if so do you think they (the sellers) are going to be willing to negotiate as much at that point?
On a very logical note - real estate is cyclical. The market goes up and goes down...la-ti-da...that's real estate. No matter what a buyer does, they will, if they buy now and keep their home for several years, make money - especially in California. People who are thinking of flipping or don't know what they want to do in 2 years...well then...I can understand the fear of purchasing. Even when the market was hot, buyers didn't know what to do, nothing has changed...the media will forever feed peoples fears about everything...real estate is just another drop in the bucket of a million other things that the media blows out of proportion and confuses people into making poor decisions based on fear and not education.
At the end of the day, you can't and shouldn't have to "convince" buyers that right now is the right time, all you can do is educate them to the best of your capability and give them the tools in order for them to make an intelligent decision for their family. If you are honest and up front with them, then they will use you when they are ready. Hope this may have helped!
In fairness to Seth, he's been one of the rare RE agents who actually acknowledges there are problems still out there on the horizon. I'm among the more cynical around here and in my opinion he doesn't simply tow the NAR line as most do. Read some of his past posts -- they show a realistic view and even the ones that are optimistic have a valid argument. Whether you agree with the points or not isn't the question - he at least backs up his opinions.
Questioning his basis of argument in a post is certainly fair game, but don't accuse him of being a member of the cheerleader crowd. IMHO his posts, whether you agree or not, put him among the most upper tier of posters here.
Re: Richardâ€™s statement below... are you kidding me?? You say I should read this entire thread to find examples of what you are saying, and yet the one example you give is directly preceded with a sentence that blows up your argument. Read his entire statement:
"This would depend on what price range the buyer is in. We can expect homes over 800K here in the San Fernando Valley to drop another 10-25% within the next year. But the bottom end of the market is hot and has already bottomed out."
How on earth can you say this statement is unbalanced? Where have you ever heard a realtor disclose his opinion that the higher-end market will potentially drop up to 25%? How can you be so distrusting when someone is going out on such a limb? Do you think he enjoys working exclusively in low end markets?
At the risk of sounding still more condescendingâ€¦ here is my definition of a bottom, which involves what I call â€œMarket Bottom Triangulationâ€:
1. Sales price falls below the cost to buy the lot and build the home.
2. Net annual return on an all cash purchase exceeds 5%.
3. You have to win seller acceptance over competing offers within a matter of days.
Can prices in markets that have â€œbottomed outâ€ decline further? Yes, and can there also be a great depression reloaded? Yes, and if that worst case scenario becomes our new reality, then let me ask you thisâ€¦ would you prefer to keep your money in the stock market, money market, under a mattressâ€¦ or in a hard asset that will produce income even if its paper valuation decrease temporarily?
And should a first time home buyer wait for prices to come down another $30k on his $300k purchase? Or should he be mindful that a future purchase may also come with rates that could realistically double his monthly payment?
Let's put some context around your statement "It is a fact that sales have increased for the past four consecutive months in the San Fernando Valley".
1. It is the selling season, you would expect sales to increase
2. Compared to last year and a year before the sales are DREADFUL !!!!
3. If you want to state sales have increased provide the numbers.
I've asked you numerous times on this thread to post number, but the only response you provide is that you are an optimist. That's great, I applaud you for being an optimist, but the here is a simple fact. The real estate market is dreadful in California !!!!