Notice that whenever the bubble popped, it took at least 5 years before the bottom was reached. If history were to repeat itself, we are looking at 2012. Plenty of realtors have an entire carton of egg on their face trying to call a bottom. There will be plenty more to come.
I hope you don't lose your shirt. But yes, it can happen. If you put 10% down, and the market goes down 4%, and you find yourself in a situation where you need to sell (e.g. lost job and can't pay mortgage) you will lose all your equity (it cost 6% to sell).
Your question is when will you see 2004 prices again? Adjusted for inflation, maybe never. If you bought it on speculation, bad move. If you bought it for an investment? Bad move. If you bought it to enjoy? Congratulations!
The Japanese RE bubble lasted 17 years. We just had more serious restriction on credit this week. The Alt-A mortgages are due NEXT year, 2009 looks like it could be worse than 2008.
Attached is Alt-A explained, it is taken from Govt data.
I wouldn't say you were stupid. Enjoy the house, live your life. Houses have historically appreciated with inflation, but they are not a great investment. They are work and can be costly, not guaranteed to be a money maker.
"The National Association of realtors says that this is great time to buy and I agree!"
Yea, they have said that every year for their entier existance. Give me a break. Look at the T2 report link and tell me now is a great time to buy. The NRA says it is a great time to buy an AK47 too. lol.
please, please- can ANYONE can give me an example of the NAR saying that ANYTIME was not a great time to buy?
and to the dude that told us that with 6% inflation, the house would be 530,000 but the salary would only be 106,000- everything else rose by 6% too. you know, groceries, bills, consumer goods, other houses. which means you make 106,000, which is more, but you get a lot less for your money spent than before.
so yeah, if an electrician's salary only rose by the amount of inflation through the years- they really aren't making any more than before.
Housing has its ups and downs. But in recent years, it became a giant bubble and is now deflating.
Real estate may be local, but lending is global. Banks everywhere are not lending unless the borrower has excellent credit and a large down payment. This has a price effect everywhere.
Anyhow, here is a video version of the Times article
Here is a perfect example of the pollution on these boards by those WHO ARE NOT UNBIASED! In other words, Ms Ridens and others of her ilk would have you put your head in the sand, switch off your brain, and spend, spend, spend yourself into economic prosperity. Why do you think the Fed needs to orchestrate a bailout? Because too many people ignored what made economic sense and bought into what these people told them. Go ask a car salesperson if you need a new car -- see what they say! If anything, we need a good housing downturn (prolonged too) just to shake these types of people out and back to whence they came.
"There are lies...damn lies...and statistics."
The problem with all the numbers on the R/E market coming out is that most people honestly don't know how to interpret the numbers, except to support their pre-conceived agenda. It may actually take a little thought and not restating canned articles, but the truth is that you have to account for all the specifics of your local market as well as the national factors.
Personally, I think markets like NYC metro, San Francisco, Chicago, and Seattle (and maybe Atlanta and DC) have come close to the floor and will see appreciation faster than markets such as Phoenix, Miami, Dallas, and Detroit. I have a specific methodology behind my beliefs...but it is something that looks at the specifics of the market...not general NY Times articles.
For a sobering perspective: we bought a place in So Cal in 2000. Our nominal price was only 15% higher than the previous owner had paid in the 1980s. In real terms (adjusting for inflation etc) we paid less than he did, 15 years or so later.
But if you enjoy your home and don't foresee moving anytime soon, then you should probably focus on that enjoyment :) The market value of your home only matters when you sell it (or refi).
Since you state that you plan to stay in your home for a few years, I believe that you will weather the remainder of the storm well. I think you made a good decision and as long as you do not have to sell anytime soon, you will end up with a net gain in your home's value.
The National Association of realtors says that this is great time to buy and I agree! Good luck with your new home and I hope you have many happy years there.
I am a homeowner for 15 years, and I LOVE my house. It will end up being a great investment. I bought in 1997, a great time to buy. It was luck, I just wanted to move then. 2004 was the peak of the biggest bubble in history. It was bad lucky that you bought then. Houses will appreciate again. I agree with that. However, it will be after we return to historic levels. They never should have gotten to the 2004 level in the first place. If you spend more than 3x your family income on your house you are hostage to it, that it why we will drop back to historic prices.
We will be down for many years. You paid at the peak of a market artificailly created by the sale of mortgages packets. People got burned buying them at too high a rating. You won't see them buying those again in our lifetime.
Enjoy the house, but don't think you made any money on it, you didn't. Sorry for the truth.
Prudential California Realty
Bottome line: As I said before, when foreclosure velocity decreases, median incomes catch up with median home prices and unemployement wanes; only THEN will this market change directions. Any RE agent that tries to dazzle you with BS (EX: Ray) should be shown the door. By the way, some of us DID precict the housing crisis. I admit it has surpassed even my negative projections, but some folks actually pay attention to the indicators.
Side note--Richard Heirs could be a bit misleading about renting...depending on the situation, renting can actually be better financially. If you took the extra money saved on rent instead of a mortgage and invested it in the S&P, you will usually come out with more money in the long run. But that would only be in situations such as now, where the cost of renting versus purchasing is a large difference. When rents are the same or more than mortgage payments, then it makes sense to buy and make your home a solid investment.
Remember this, homes are not assets...they are liabilities that require monthly payments just like a car or any other item you have a loan for. It only becomes asset money once sold for a profit. In the meantime it is nothing but a liability.
Local experts are fine if they are objective. Agents are not objective, you can't be when your income depends on houses selling.
Attached is a Zillow chart for the area, they too seemed to peak later. However you don't have to be a mathematician to see where it is headed.
Again, the answer to her question is: No not stupid, just don't expect to make money on the house if you sell in a few years.
Were you stupid? No. Just not sufficiently educated about determining value in real estate. A lot of people made far worse mistakes. Since you don't have to sell and you ended up with a place you like, you're fine.
No one knows for sure what the real estate market will do. And, as others note, real estate is also local. I'm familiar with much of Alexandria: I worked for 7 years on Mill Rd. near the Eisenhower Metro stop, and I've worked another 7 years on the north end of Old Town. Alexandria's holding up pretty well. I'm a bit concerned about all the new construction along Eisenhower Avenue--whether that'll be a glut on the market--but otherwise it should do OK. As for prices in Alexandria and surrounding areas, considering BRAC a bit to the south, all the associations in Alexandria, all the federal employees, and the new office space around the Hoffman Building, my best guess (only a guess) is that prices will dip a bit more this year and maybe even next (2009). Then they'll stabilize and start climbing upward. And it might not even take quite that long.
No, you're not going to lose your shirt and you're not going to end up in financial ruin. And if you hold the property for another 4 years or so, you most likely will come out ahead.
Hope that helps.
That's hilarious, Carl. Made me laugh. A broker who doesn't walk around with Rosy glasses, who writes well and who has a sense of humor. You are a rarity in your profression, sir.
Yes, here we are in 2012 and prices have declined slowly almost everywhere. I note another 2-3 years at best before leveling. Incomes and prices still do not match very often in local markets.
We can now see the damage down when 2000-2006 mortgage products were created (no money down, 40 years, no doc loans, then interest only) by the banking-financial industries, unregulated as they were. I still encounter victims. Sympathy for banks and "those buyers should have to live with their mortgages, because a contract is a contract" has shifted to "those greedy bastaxxds should be in jail." When the Comptroller of the Currency is finished with its investigation and we learn the stories of how banks created a culture leading to our present condition, we will be shocked beyond imagination. They convinced loan agents to sell high risk loans for more commissions over the lower paying conventional loans. It was pervasive. As RE, we contributed if we encouraged buyers to talk to our mortgage reps with those exotic loans. I wonder what RE hell is like. The devil chasing us with his pitch fork around an Open House that won't sell? A closing inside a burning inferno of a conference room? A sales meeting with sellers of web sites, inspections, stagers, movers, mortgage reps, and direct mail that never ends?
But money can be made by serving those who need to sell and those who want to buy. What a country.
The Case-Shiller Index, although flawed in many ways, clearly points out what most real estate agents have known all along: residential markets are very local. There are several areas of the country in which prices are stable and rising now, while others continue to languish. Even in the D.C. Metro area, there are huge differences in price trends from town-to-town-, county-to-county, and neighborhood-to-neighborhood.
There are Northern Virginia neighborhoods I work which have severe demand/supply imbalances, and prices should be rising faster than they are. The misconception that appraisers determine value (wrong---the market determines value in arms length transactions between willing buyers and sellers) is keeping many sellers from realizing this. Unfortunately, many agents have gone along with the "if the appraisal doesn't come in at our sale price, we must reduce to the sale price and move on...." WRONG!!!! If you are a seller and hear this from your Realtor, GET ANOTHER REALTOR! Appraisers are forced to look at price history; it is a backward-looking mechanism which does not, and will not, catch price reversals and markets which are trending upward. If your Realtor cannot meet with the appraiser and help point out the rising trend in the specific neighborhood you live in, but rather takes the easy way out and tells you "we are stuck because of a lower than sale price appraisal", you have the wrong Realtor.
Before accepting an offer in a rising market, make sure the buyer is able to put down more down payment if the appraisal comes in too low.
I realize that the above is valid only in select markets right now, but I am in one. It is frustrating to see prices inch back up when there are 5-to-1 supply/demand imbalances in many neighborhoods I work.
"Was that really stupid?"
From my life experiences, of which there are many, I feel pretty confident saying that most people in the USA do not think it is a stupid idea to buy a house that you can afford to pay for, which you are going to live in and make your home. If you have bought a house that is within your means to pay for, then you don't really have anything financially to be very concerned about, unless you just like to worry about things you have no control over (like predicting the future). Given that some of the alternatives to buying a home are paying rent, living with mama, or in a travel trailer, all of which I have experienced, I like the own your own home option.
The price you paid is largely irrelevent at this point. Think of it like buying a new car and always wondering if you could have bought it somewhere for less. Of course, you could. There is always another day or another place to pay a few bucks less or more for something. But once you have bought your home, guess what, it's yours! Now you get to take care of it, improve it, and pay it off. Quit worrying about the value of it in dollars and cents, and squeeze out of it all the value it has as your home, a haven from an otherwise cruel world. Play your CD's loud, dance around in the kitchen, cook for freinds and family, and plant flowers, it's yours to enjoy!
Here is a new idea--If you really work on paying some extra towards the principal amount owed on your home mortgage, you will wake up some day and find that you have it paid for! yes, this actually works! And having your own home paid for is acknowledged by many independent financial advisors to be a pretty smart thing to do, since it provides you a roof over your head and allows you to invest the part of your income otherwise going towards your mortgage payment into home improvements, cash savings, retirement plans, tuition for kids educations, and other investments of your choice.
Congratulations on making a great choice. You'll do just fine. Quit reading any news about real estate and this forum!
I won't have to sell because I can't make the mortgage/lose my job. I have a really secure job that I love. It's more a matter of, its a condo and I (and my now serious significant other) may want a bigger place in four years, five years (2011, 2012 ish). I'm never leaving the geographic area, so I'll have some flexibility about when to sell.
Is there any data out there on the percentages that rents tend to increase from year to year (particularly in a city suburb-- I live 15 minutes outside of Washington DC). I couldn't rent it out for exactly the mortgage now, I'd be a couple hundred shy at most. But am trying to figure out if I'd be able to rent it for closer in a few years.
My other question is... in Ben's scenario below, he's only counting the 10% down, not the equity building up through my mortgage payment, correct? I know its a small amount every month but over 4-5 years it adds up.
Thanks so much to everyone!
The only agent who had the cajones to admit trees don't grow to the sky was Shirley, I mean Carl Witzig. Well done Carl.
Until this nation abandons the nanny state regulations that have handcuffed business and the micro economies begin to see inflows of capital from outside sources, this economy will continue to stagnate and housing will continue to decline slowly. However if you are in a strong liquid position with a rock solid job, this winter will yield some very nice deals...do not offer asking price and do not buy without a VERY rigorous inspection process.
My experience in real estate and on Wall Street leads me to this conclusion: Anyone telling you definitively that a certain market is going to do up, down or sideways, whether in stocks, commodities, or real estate, is generally less accurate than a flip of the coin.
Both the economic and technical factors affecting a residential real estate purchase are so different from region-to-region; from state-to-state; from city-to-city; from zip code-to-zip-code; from block-to-block. So global answers to this question are to be taken with a grin of salt.
How many "gurus" predicted the major decline of national real estate in 2006-2007? How many "gurus" predicted that the stock market would rebound and regain all losses in a two year period from 2009-2011? I don't know of any. Beware global statements, polyanhish predictions, or Chicken Little "The Sky is Falling" voices.
You should be asking yourself questions like: "How long do I intend to remain in the house I will purchase?"; "How favorable is the financing I can achieve?"; "Which neighborhood(s) should I be focused on and which ones are really where I want to live?" ; "Is the type of home I am considering going to satisfy my requiremnts for year?" ; "What is the comparison of rent to buy and is this a neighborhood which is likely to show strong/weak demand in the near future?"
Most of the key questions are best answered by an exerienced LOCAL agent. This goes way beyond simple CMAs(competitive market analysis) but by working with someone who you trust to help you reach the right decision for you. This requires that you go beyond using "a friend of a friend" and truly have a face-to-face conversation with agents who can openly and accurately answer your questions, and with whom you get the "feeling" he/she is the right person to help you. Yes, such intangibles are important as well.
In the Northern Virginia market, there are many areas which have already "bounced back." Others are clearly pointing toward favorable economic and supply/demands forces, while other areas are not. So to make a blanket statement on market direction does you no service.
Feel free to call with any questions or concerns you have about your potential purchase. I can be reached at 703-855-7299, or firstname.lastname@example.org.
And what I said above doesn't take into account the equity in your home. If you didn't have an interest only mortgage, you would have paid off some principal, so you would get that money back at closing.
Good luck - in a lot of parts of Alexandria, you would be fine if you're going to sell now or even better in a year or two.
Hope this helps!
Kristen K. Foley
Delaine Campbell, REALTOR
1. Rent: This is a 100% loss, and is completely and totally stupid. There's no money to be saved or gained here. If you (whomever is reading this) have your blood boiling over this comment, that's fine, I still think you're stupid.
2. The only thing dumber than renting: Buying a property blindly because you think it's "cute" whatever. There are plenty of morons in big cities who are dying to move into some trendy neighborhood to the point where they inflated the costs of some houses to three or four times what they should be. These people buy based on how "cool" they think something is, rather than a realistic market value. Buying a house like that in a market like this is a guarantee to get stuck in that house for a few decades trying to get above water.