Another claim that comes a lot is buy now before rates go up. Rates have not declined with the last 300 bps in the prime rate. This is unheard of and due to people being afraid to loan money. The rates won't be raised until people are no longer afraid to loan money. And we'll see this when people start loaning money driving rates down. The government seems unconcerned with the tremendously weak dollar and continues to try to spur lending, this will bring down rates. Plus rates are not at historic lows. 2003/4 was historic lows, now is better than it was 10-15 years ago, but its no longer historic, and its high for the last 8 years.
Also, you reference the case-schiller index for your data, but there are also futures markets for the index. Here is the link to delayed prices: http://www.cme.com/trading/dta/del/delayed_quote.html?Produc .
Finally, you make a good point about a house being an investment, and it is. The NAR ads like to tout that a home is a very large part of most people's net worth, but this is misleading. Its not becuase its a good investment, its because you have to pay into every month and therefore build equity. Here is a graph of the Case-Schiller index vs Inflation: http://bp0.blogger.com/_pMscxxELHEg/R-k6W9DCIVI/AAAAAAAABwo/ Prior to the insane bubble we just had, a house appreciated basically at the rate of inflation for the previous 14 years. Basically a home is a vehicle that forces people to save, although with home equity loans, you can even avoid that. You also will hear that if you plan to hold for a long time, it doesn't matter, but this is also ludicrous. Using some quick shorthand, assuming $6/$1000 borrowed per month, if you buy a house today that in a year, you could get for $50k less (in a city like chicago or NYC, that's an extremely reasonable price drop), and you sold the house in 20 years, not only would that 1 year of living cost you $50k in equity that you overpaid initially, your monthly payments will be $300/month more which means you will pay $72,000 extra in payments over that 20 years. That means in just pure money paid, you're out $122,000 without factoring the opportunity cost lost with that money. You'll also hear about rates, but when rates change, you can refinance, no one will refinance your purchase price for you.
There are good reasons to buy a home, the tax breaks are nice although constantly overstated by anyone with a vested interest in keeping sales churning (realtors, mortgage brokers, etc). It is nice to become part of a community and school district for children, and to have neighbors and a neighborhood that is familiar. We are currently house shopping also but rather passively due to the market.
From another post, John The Bruce posted this study from the Center for Economic Policy and Research that paints an extremely dismal view of the upcoming real estate market. CEPR has no agenda related to housing so this study is not likely to be biased by politics.
Whatever anyone else wants to believe, I am a real person who was absolutely planning to buy a house until about a month ago. My wife and I were in a contract to buy property at 4547 N. Ashland (Chicago), and we got out of the contract due to some problems revealed during our home inspection. My wife and I were checking websites such as craigslist, buysiderealty.com, and others on a daily basis looking for new listings.
Then I found this website and was drawn to a comment and report cited by Trulia member John the Bruce. The report persuasively argued that home prices would continue to fall in the short- and medium-term future. I had heard home prices were falling, and my intuition was that this made it a particularly *good* time to buy, because I would get more for my money. I never considered the fact that prices could *keep falling*, perhaps dramatically. After all, real estate prices have been increasing every year since I was about ten years old, and Realtors I talked with always (yes, in my experience, ALWAYS) told me that it was a good time to buy. I just assumed that any price drop must be temporary.
After I read John's link, I did some research on my own, and I created this question thread. It is hard to overstate how grateful I am today for this website and the contributions made to this thread by several Trulia members. As a once-objective and unbiased mind, I am now absolutely convinced that prices will continue to drop for at least another year, and I firmly believe that the information gleaned from this thread has protected my wife and I from losing a great deal of our savings in an ill-advised real estate purchase. The Center for Economic and Policy Research (an organization with neither a "horse in the race" nor a tarnished reputation, see: NAR) recently estimated that, based on the most recent Case-Schiller data, more than $6 trillion worth of home equity will "disappear" in 2008 alone due to home price deflation. This equates to an average of $85.000 of lost equity PER PERSON.
I am gladly not a part of this statistic. If anyone stumbles onto this website, and onto this thread, and makes a wise decision based on objective data instead of NAR spin, then the thread continues to serve a valuable purpose. To anyone reading this right now, I would recommend reading the first 100 or so comments, which are substantively the strongest, or you can click the link above entitled "Highest Rated" for the answers other Trulia members have chosen as the best.
I am not aware of any other resource on the internet right now with more comprehensive analysis or better data links than the posts contained in this thread. Those who call for the termination of this thread are obviously bothered by the prospect of regular people having easy access to valuable information--there is no other explanation, because anyone who is simply annoyed by this thread could easily choose not to read it.
Finally, I would note that with 600+ posts, it is more important than ever to properly flag posts worthy of "thumbs up" so future readers can actually find the best information.
If you believe in the wisdom of markets, check real estates futures markets here: http://www.cme.com/trading/dta/del/product_list.html?Product
The Federal Reserve has released their Beige Book here:
There are record price drops here and news of a slow spring here:
The NAHB President is quoted as saying:
â€œWith the traditional home buying season now well underway, we have not seen the bump in sales activity that we normally would this time of year,â€
We have news of foreclosures skyrocketing (another sign of a soft market):
And lastly (for now), I'd point out that there was an enormous explosion of realtors during the boom:
The end of the boom means that there are now 1.3 million people sharing the commissions that in the past would've been split between maybe 700-800k people. That's a lot of people with a lot of motivation to... let's say to be "optimistic".
I look forward to seeing some hard scientific references from the real estate pros.
Canâ€™t we lay off the numbers, facts, market surveys, media reports, university studies and what-not so that we can focus on the truth?
Donâ€™t you know that:
Itâ€™s a great time to buy! â„¢
Itâ€™s different here!â„¢
Buy now before itâ€™s too late! â„¢
Interest rates are at an all-time low! â„¢
Real estate is a great investment! â„¢
How else can you get tax deductions? â„¢
Renting is throwing money away! â„¢
Real estate is local! â„¢
Itâ€™s the mediaâ€™s fault! â„¢
This time itâ€™s different! â„¢
I hope the NAR is getting their royalty checks.
1. People can't afford the payments on the current prices so the prices have to come down. A few people came up with a great scheme to defraud the basic investor (shame on rating agency manipulation) but as soon as word got out that the AAA rated debt was junk the lending dried up. The part the real estate industry missed is that the mortgages were always junk! Every slimeball signing these things knew that they would never get paid. The only way you pay off the balance of an interest only home loan is to sell the home. People were "renting" (interest only is renting people) while hoping that prices would go up and they could excercise their option to sell for a profit. With no money down you stood to gain hundreds of thousands of dollars and could walk away if prices dropped without losing a dime. Now that banks are asking for down payments all the burgerflippers turned housing investor can't play. People who have a down payment just don't want to risk a loss. Loss was a risk that HAD to be missing to allow the bubble to get so out of controll. Joe sixpack can't buy your house for $500,000 even if you convinced him it was going to be worth $10 million, he doesn't have the money. If you think the doctor will buy it, your nuts! He lives in a prebubble palace twice the size with a $300,000 mortgage.
2. Interest rates. Joe can afford $1000 a month. If they increase interest rates, your gonna lower your prices, a lot, or Joe won't buy your house. If a realtor says that intrest rates will price you out of the market it's a slimeball scare tactic. You are the market. Burger Flipper the inverstor is not in the market anymore! It probably only means that the prices will crash twice as hard. It was cheap money (low rates) that caused people to pay too much for houses. Why would that be a good thing to do again? If prices drop before rates go up good, but the person who's gonna buy house X (without getting forclosed on) is gonna pay $1000 month.
3."Real estate is local." Well, if they mean the house isn't going anywhere, they are probably right. If they mean that people didn't takes stupid loans and buy McMansions they couldn't afford I call BS. Some places may get hit less severly than others, but the bubble is over everywhere. Places with more established, less consumeristic populations probably won't be hit like Pheonix, LasVegas and pretty much all of California and Florida, but they won't be experiencing the bubble like increases. Joe can still only afford $1000 a month.
4. Tax deductions. You get to write off the interest. In a close market this may be an advantage to renting, but saving 25% of the money you are throwing away (not putting to principal) isn't a good reason to buy a losing "investment."
5. Upgrades. If you sell and upgrade it doesn't matter if the market drops. For simplicity I'll assume both homes drop equally in my example. If I sell a home for $200,000 and buy for $300,000, I assumed $100,000 more mortgage. Ithe the market drops 50% before I buy those numbers are $100,000 and $150,000. Now I only assumed $50,000 on the same transaction. For simplicity, the percent the market drops is directly proportiona to the ammount of "upgrade" you purchase. You still lose.
One other point that I have to make is that if home prices decline 10%, you've probably lost far more than 10%. If its in the first year you own your home, and you put 10% down as so many people do, you've lost 100% of your investment. If you put 50K life savings down on your 500K home, and a year later have to sell it for 450K, you've lost your life savings, not 10%. People hesitate to leverage a stock position, yet they all live in homes that are levered 10x - far more than the 2x you're allowed to leverage things in the stock market.
I also can't help but comment on Jerry's opinions. First, let's talk about his friend's parents who've seen their house go from 32K to $1M. Well, over 48 years that's earned them 7.5% - not a bad return at all. From 1950 to 2007 the S&P 500 returned 9.2% annually. If only they'd rented instead!!!!
Jerry also told us:
"Yes, we had a huge run up over the past several years. This was caused by several factors including historically low interest rates and flexible lending programs. However, I believe the real reason was that after 911 and the dot com bust investors were looking for a safe and viable investment vehicle."
Can he possibly, honestly believe that the exotic financing options that came out weren't the primary cause of this? Can he really think that the sudden availability of $1M homes to families that make 75K didn't cause a massive rush of demand for a fairly fixed suuply of homes? I can't decide which is worse, if he actually believes that or if he's just pulling the typical realtor spiel - one's ignorant and ones unethical.
If you're increasing the number of homes you own, or if you're buying a home in a significantly higher class than your existing one, the problems relating to volatility and downside risk on a highly leveraged investment are far more significant.
Perhaps there would be a consensus if we came up with a few scenarios:
Selling a $300k home and buying a $350k home -- doesn't really matter when you do it, as your downside risk is similar in both the current and future position.
Buying a new home or a second home -- matters greatly when you do it. Careful consideration should be made to examine local price/rent ratios and property tax rates to determine if it's wise, but renting will often be a better deal here, particularly if you are not planning to stay in the property for an extended period of time. I strongly suggest that this group of people talk to financial planners, not Realtors, if they aren't comfortable analyzing the options for themselves.
Selling a home of significantly lower value than the new home: the dangers of highly leveraged investments (read: homes) become very important here, as the downside risk isn't comparable between the two. In this case, it's almost always going to be wise to wait for the prices to recover and start having upward pressure before purchasing.
If you must sell your house, put it up for fair price, clean it up, declutter, stage it right (with what you have or little investment) and it will sell.
Selling now, yes, you may get a better price than later.
There are still buyers out there that need to move or relocate for whatever reason be it schools, job, etc.
The world is not coming to an end.
Two things especially bother me: (1) the NAR holds itself out as an unbiased organization. Most buyers don't know (or think about the fact) that the NAR has a vested interest in seeing homes sold, so these buyers rely on NAR information as if it is The Truth. After all, who would know more about real estate than Realtors?? This problem is compounded by two facts: (a) the NAR advertising budget is huge, so it has a powerful ability to sell its spin; and (b) its opinion is largely unrivaled--because what organization would spend millions of dollars to prove house prices were falling? (2) it also bothers me to hear Realtors blame the banks and the media for the downturn. The media has no role in the downturn; it merely reports data. The banks do have a role in the downturn, but only to the extent that they had a role in the dramatic upswing before credit tightened. In my mind, the NAR, with its perpetual optimism and deceptive spin, is more to blame and therefore just as responsible for the impact of foreclosures and price downturn on American families as any other entity.
Here is an excerpt from a website I found depicting NAR spin in the past few years (web link below):
[Iâ€™ve always found NARâ€™s opinions to be very entertaining. As the real estate ship Titanic slowly sank, you could be sure the NARâ€™s chief spokesman (David Lereah) was busy running the decks proclaiming how wonderful of a day it was and how nobody had anything to fear because the ship was running just fine. Before the pop, Lereah was busy calling bubble believers â€œChicken Littles,â€ while trying to keep the hype going. The image and message displayed at the top right of this blog entry was even part of NARâ€™s $40 million â€œItâ€™s A Great Time To Buy Or Sell A Homeâ€ advertising blitz campaign that started on November 2006, advising consumers to take buying or selling action now while conditions remained favorable. Such eternal optimists.
As CBS Marketwatch bluntly pointed out:
There are two universal truths at the National Association of Realtors: 1) Itâ€™s always a good time to buy or sell a home; and 2) Weâ€™ve seen the worst of the housing market correction.
Just for kicks, letâ€™s take a look at the National Association of Realtorâ€™s predictions and compare them to what actually happened:
December 2005 - NAR predicted the national median home price would rise about 6.1% in 2006. Over a full year, it â€œhas never declined since good record keeping began in 1968,â€ NAR boldly stated.
* The Reality: Through October 2006, the median price of residential properties was down 3.5% from a year earlier. The median price decline is even worse if you take into account all the extra cash and financing incentives that were thrown on new home buyers.
January 2006 - David Lereahâ€™s forecast: The market is in the process of normalization and â€œThe level of home sales activity is now at a sustainable level, and is likely to pick up a bit in the months ahead.
* The Reality: Fourth quarter sales fell at an annual rate of 12.6% to 6.94 million annualized.
April 2006 - NARâ€™s forecast: Home sales will move up and down somewhat over the remainder of the year but stay at a high plateau.
* The Reality: First quarter sales fell at an annual rate of 8.6% to 6.79 million. Lereahâ€™s explanation: This is additional evidence that weâ€™re experiencing a soft landing.
July 2006 - NARâ€™s forecast: The market should even out just below present levels.
* The Reality: Second quarter sales fell at an annual rate of 6% to 6.69 million. Lereahâ€™s explanation: The market is stabilizing.
October 2006 - NARâ€™s forecast: We expect sales activity to pick up early next year.
* The Reality: Third quarter sales fell at an annual rate of 22.2% to 6.28 million. Lereahâ€™s explanation: This is likely the trough in sales.
January 2007 - Lereah announced: â€œAfter reaching what appears to be the bottom in the fourth quarter of 2006, we expect existing home sales to gradually rise all this year and well into 2008â€³
* The Reality: * Fourth quarter sales fell at an annual rate of 2.3% to 6.24 million. Lereahâ€™s explanation: It appears we have established a bottom.
September 2007 - NARâ€™s new chief economist Lawrence Yun confidently proclaimed: â€œMortgage disruptions will hold back sales over the short term, but long term fundamentals are favorable. A modest upturn is projected for existing home sales toward the end of the year, with broader improvement to include the new home market by the middle of 2008.â€
Let the games begin.]
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 compotent Realtors with integrity would admit that prices are going down in most parts of the country and most buyers could save money by simply waiting for the bubble to further deflate.
It is true that the Midwest did not have the incredible price inflation seen on the coasts. But, the price inflation was not entirely supported by fundamentals. The market provides clues as what will be occurring in the future. Price is a lagging, not leading indicator. Leading indicators include such variables as sales transaction volume, economic conditions, migration patterns, and inventory â€“ most notably the type of inventory. Foreclosures and worsening economic conditions lead to must sell properties.
The â€œmust sellâ€ properties will lower prices to sell their units, lower prices will depress overall prices making it more difficult for those facing recast to refinance or otherwise work out their financial woes, creating more foreclosures, more foreclosures add to the inventory, creating more price competition and further tightening of underwriting standards. How vicious this cycle will be is anyoneâ€™s guess now, but it is getting worse â€“ not better.
Unfortunately, foreclosures on properties in the Chicagoland Area (which includes Cook, Dupage, Kane, Kendall, Lake, McHenry, Will and Winnebago Counties) continued into record territory in the 1st quarter of 2008. The 15,000 new preforeclosure listings filed in the first part of 2008 were an all time high, representing an 8% increase over the 4th quarter of 2007 and a mind blowing 100% increase from the foreclosure filings in the 1st quarter of 2006. Here is a link for further information: http://www.ilfls.com/free/newsid.php?page=1&news_id=27
I think it is fairly obvious that prices will continue their downward trend.
With that said, if someone has sufficient assets, they may not care about whether their home decreases substantially in value and there are benefits from home ownership. But, in my opinion, there are ample rental opportunities to wait out this deflating real estate bubble.
Nice response. You make good points about selling and buying at the same time and Richard does a good job of addressing those below. I consider myself a first time buyer since I'll be selling a co-op to buy a house and will be greatly increasing my leverage much like Ryan so I look at my data with that in mind. I am familiar with the Consumer Confidence Index and the Consumer Sentiment Index but what is not decided is whether the index leads or lags the economy. It is debated by many experts over which is more cause and which is more effect between the two.
Karsten, I thank you for the compliment about spouting facts, they're rare on these boards. I implore you to post once more and provide the original poster and myself and other interest parties with economists and papers of the opposite opinion. I'd be very interested in reading them. Also, what is the basis of "most actually are" in reference to most areas doing well? I've looked at all the individual areas in the Case-Shiller index and in the OFHEO HPI index and according to those, very few markets are doing well.
Now's the time when that fact spouting comes back and bites you in the a$$. Rates having NOTHING to do with futures. I can't even fathom what you mean by this. Futures on what? This statement is like saying the weather has to do with how many times i flip a coin tomorrow. Its not just that the correlation is low, its nonsense. Mortgage rates are tied to the 10 yr treasury since their duration tends to be 10-12 years. Here's a CNNMoney link explaining it: http://money.cnn.com/2003/10/15/pf/expert/ask_expert/ The fed funds rate has a very high correlation with the 10 year treasury, so will have an effect on mortgage rates. To take the other side, if the fed funds rate doesn't have any effect on mortgage rates, the fact that it was 1% in 2003 had nothing to do with the fact mortgage rates were the lowest ever?
Houses are not a good investment because they require you to save, they are a good saving mechanism with a poor return because there are very real consequences to not saving. This is not an investment, its forced savings at the rate of inflation. Since people will not save unless forced to, this is an advantage to homeownership but it does not make them a good investment.
"How many people do you know with equity in their homes? Or with stuff they got using an equity line from their homes? How many people you know with savings accounts equal to that equity? I bet the numbers for the latter aren't even close."
I'm 31, live north of NYC, and I'm having trouble thinking of more than a couple of people I know that have more equity in their house than money in savings. I'd guess my parents friends probably do, my parents do not, but I don't know that.
I realize facts and data are the enemy of the realtor, but don't shoot the messenger. I have provided no answers about the housing market. I have provided data. CS index vs inflation, CEPR paper, CS chicago index futures. I have stated what historical trends have shown. I have provided a mathematical example of what happens if you overpay and how much it costs you. I have stated my beliefs on what interest rates will do, so if you want to try to poke holes, that's where you should aim. Everything else is just facts and numbers provided by government studies or by widely accepted indices.
You said, "Try telling that to my friend's parents in Los Gatos, CA who bought their home in 1960 for $32,000 which is now worth about $1 mil. Inflation or not, that's a good return on your investment."
This is high comedy. You claim I analyze things the way the media does, then you cite a single home as an example of how housing is a great investment. So by your methods, I'll use my parents. My parents house cost them $150k 21 years ago in upstate NY, today they could sell it for about $130k. Over 21 years, losing 20k on your house must mean housing is a horrible investment.
I don't claim to have all the answers, just provide data, by contrast you make snide remarks about a post that is high on facts and low on opinion, and provide NO data other than your beliefs. You state, "However, I believe the real reason..." no proof, no data, just your feeling, great. You state, "Investors are again looking for a safe haven ... So, viola!" Do you have any data to support that many investors are returning to housing in the Phoeniz area? I'd be interested in seeing it as the JP Morgan earnings call this morning talked about more writedowns and how investors were not interested in housing products. Also, you mention that people are buying up all the bank-owned and short-sale properties, as if this is a benefit. The phoenix market must be rolling with all these bank-owned properties and short-sells. Bank-owned properties and short-sells were all the rage in 03-04 when the market was skyrocketing.
Finally, I'm confused by your claim about seeing a Yale economist claiming that home values haven't appreciated in 100 years. Was it meant to contradict the rest of your post? Or do you believe yourself smarter than this Yale economist and believe that he cannot be right without reading his study?
Jerry, the poster encouraged you to state your opinions and was asking for why you believe that. From what I can gather from your post, your why is that investors are returning to housing, to which you provide nothing to support and that phoenix has had an uptick in bank-owned properties and short-sells. Other than that, you just took shots at my post without providing any counter argument other than your friend's parents house.
But seriously folks, I heard the most successful realtor in my area today say, its the media's fault. "If only they would say, in some but not all areas, the market is down." Now I know what it feels like to be a republican and blame the media.
Thank you. I'll be here all week.
Your $2,000 rental analysis makes no sense. You complain about the upfront security deposit that somebody needs to make - I seem to recall housing requiring a small upfront payment, that's typically more than several years rent. Perhaps your clients were all the people who are upside down in their reverse amortization arms, but these days, some down payment is required from everybody. You blatantly ignore that your security deposit comes back to you. Then you compare the rent to owning a $300,000 home. The studies cited earlier on here make it very clear that a $300,000 home doesn't rent for $2k/month - they rent for much less. Typically, a 2K in rent equates to a house with 3K+ in monthly expenses, so you can pay 2K and rent, or 3K and own. For that extra 1K each month, you get to a few hundred dollars in equity (for the first few years), you get your down payment tied up, and you're slowly aspiring to own an asset that has beaten inflation by 0.4% each year for the last 120 years. Does that sound like its always the right choice?
Your ridiculous assertions are sadly echoed by too many (but not all) Realtors and are the cause of the animosity on this thread. Your sales volume doesn't tell me anything about your ability to analyze if buying vs renting is a wise financial decision - but I don't think I need much more info than your first post to sum up what you know.
Can we add a counter to total the BS NAR company line responses? I'd guess there are probably nearly 80 by now. "BUY NOW! RATES ARE LOW! ITS A BUYERS MARKET!"
Thomas, awesome, Chicago has a diverse economy. That hasn't stopped it from being 2nd only to LV in foreclosures last month (reference in one of Ryan's replies earlier). Chicago was part of hte bubble, it may not have been the highest point, but it was on it, and now its coming back to earth.
The last 3 responses by Bob, Jennifer and Nancy increase the company line count by 3. I realize this is a long thread to read, but if you read the first 10 replies, the company-liners would realize they came to an intellectual discussion without any intellect and may stop dragging this thread to their drone level.
As of now, no one has submitted any reports or other data indicating that prices are rebounding or even stabilizing.
The report linked to below is shocking: contrary to hope and popular opinion among many Realtors, now is not a perfect time to buy--in fact, it may be the worst time to buy we have ever seen. The report indicates not just that prices have dropped; not just that prices are dropping and will continue to drop; but also that prices are dropping now faster than ever, with January (the last month with data) being the worst month yet.
Real estate is not the stock market; we don't see a great month followed by a bad month. Rather, trends accelerate consistently until they become stagnant, then (and only then) might the trends change.
In August 2000, Enron stock was worth $90/share. Enron executives told the public they predicted it would hit $140/share, so people kept buying. Within a year, its price had falled to $42/share. Everyone said "look how badly the stock has fallen! It must be a perfect time to buy!" Two months later, the stock fell to $15/share. Everyone (again) was told that it had bottomed, so millions more people invested savings into the stock. Months later it was worthless.
I am not saying people who own homes will bear the future of Enron investors (I certainly hope not, because I am a home owner). Home prices ARE more stable than stock prices, in part because they are tangible assets and less manipulable. But there are some similarities: like Enron executives, Realtors have long professed the enduring (and inevitable) appreciation of the assets being "sold" to the public; both assets saw very large appreciation in a short time period; and today, Realtors continue to profess--in response to increasingly bleak economic reports--that NOW is the "perfect time to buy."
I just don't like the logic. When real estate was rapidly appreciating, it was the perfect time to buy--because everyone was making money and would continue to do so. Now that prices are rapidly falling, it is the perfect time to buy--because surely we've hit bottom (or are at least close).
The problem is, there is no reason to believe we have hit bottom, or that we are close to hitting bottom. All studies I have seen indicate that prices are now falling faster than ever, and the problem is quickly intensifying, not stabilizing (and certainly not "rebounding").
If there is ANY DATA refuting these claims, please submit it. My opinion is based on the evidence I have seen, and I will soften (or even change!) my position if the evidence warrants it.
Karsten Torch is dishonest and attempts to scare people by implying that a 1% jump in mortgage rates could occur at any point in time. In reality, mortgage rates are generally tied to 30 year T-bonds and 10 year T-notes, and thus can be forecast with reasonable accuracy.
Additionally, It's clear from his post that Karsten doesn't know how mortgages are priced, but is willing to pretend otherwise. This alone should be evidence that his posts should not be trusted to contain any facts. (or as he likes to refer to them: opinions.)
Furthermore, Karsten Torch is deeply manipulative when he writes "prices are can be pretty sure that our market is near the bottom (note I didn't say it IS the bottom". Of course he didn't say it IS the bottom, that's obviously and provably false. He said it's *near* the bottom, which means nothing. It says nothing about the likely forecast for where the bottom will be.
Beyond that, price declines in this sort of market are usually followed by prices that skip along the bottom for an extended period of time, so even if prices were definitely at the bottom, that wouldn't imply that there's a significant reason to rush into a purchase.
I'd point out that the JPM earnings call earlier today predicted a 7-9% decline in housing prices in the 8 remaining months of 2008. That doesn't even get into the possibility that 2009 could also be a bad year. Some people could say this is one opinion versus the other, but in this case it's a company warning investors that they are likely to take an enormous loss, versus some guy on the internet who is trying to make a buck on a sale.
Finally, it's true that a 1% gap in interest rates equates (in monthly payments) to about a 10% decline in prices, assuming a 30 year fixed, but again, there is no reason to believe that interest rates are going to increase significantly this year.
If Karsten has any econometric evidence to prove that mortgage rates are likely to rise significantly or that housing prices are likely to level, I'd love to see it, but I won't hold my breath.
After all, the only thing I learned for sure when reading his post is that many Realtors are serial fabricators who should not be trusted if one likes one's wallet.
I read all of it, the good, bad, ugly, and the spins. I give my clients an overview and summary, with links or references of where they can go to read or reasearch more.
That may be true in your professional life, but this is a discussion about the virtues and dangers of either decision, an attempt to create a resource for people who have not, in fact, made up their minds.
That said, you seem to imply that people who complain about trite REALTOR answers are somehow "just complaining", when in fact, we are fighting a largely uphill battle to make sure that this resource contains useful information about buying versus renting.
People need to know to do basic things, to include maintenance, HOA fees, taxes, insurance and utilities on their "buy" side equation. Similarly, they need to look at their rent side equation, and ask themselves if they are sufficiently disciplined to invest the saved money, so that they are building overall equity.
People need to be reminded that when calculating tax benefits, that they need to compare realistic numbers, and not to forget that there is a standard deduction for everyone, and that your mortgage interest "benefit" only starts after that.
People need to be reminded that real estate is a highly leveraged investment, that if ttheir life savings of 20% down, and the market declines 14%, that they are essentially bankrupt in the real world. They need to be reminded that there is risk, and that they need to consider it before moving. This doesn't mean they need to do nothing at all, but they need to move with caution.
People need to be reminded that homes are emotional, but more than that, they are financial, and that they need to consider both viewpoints.
I don't think it's your responsibility to tell people to rent if they want to buy an overpriced home. But I do have an interest in helping educate interested parties about the sorts of information that are out there.
Potential home buyers should know that there is a variety of useful information about the market that can paint a picture for them. They should know about the Case-Schiller Index and the picture it paints, but they should also be aware that one can predict inventory by looking at starts versus sales, and that this is not magic or alchemy. It's math and science, and while it's not perfect, it's likely a lot better than asking the advice of somebody who, as you admitted, is there to sell a home.
It's wrong to characterize our struggle against the torrents of repetitive REALTORs as complaining. Perhaps we get bitter because there are relatively few people fighting for education, while there are scores fighting for 'It's a Good Time To Buy!' But it's not complaining, and it's not pointless.
I'm glad Ryan saw John The Bruce's excellent posts and came to a decision on his own. It's my feeble hope that a few other interested people will see this thread and, if nothing else, will come away understanding that home purchases are enormous financial decisions that should be considered in a meaningful way. They should understand that a bad decision could easily wipe out years of savings, and that it is not a no-risk investment. They should understand that there are alternatives.
Personally, this is almost a hobby for me. I'm a semi-retired entrepreneur who has made much of his career in and around the finance field, and who strongly believes that most peoples lives could be significantly improved if they had better access to good financial analysis.
I look at people who try to claim that purchasing should be the default decision, and I cringe, as I see years and years of hard work and labor getting destroyed by a group of people who are giving what can best be described as an 'extremely optimistic and biased' advice.
It's fine if somebody considers everything and decides they're willing to pay the possible penalties and take the risks, but they need to be aware that the risks exist.
The broad package approved by the House would retool the Federal Housing Administration program to guarantee up to $300 billion in home loans when a property has declined in value. Lenders would have to erase a portion of the original loan to secure a government guarantee on future payments by a homeowner. It would also give first-time home buyers a tax credit of up to $7,500, let states issue $10 billion in tax-exempt bonds to refinance loans and create a tougher regulator for Fannie Mae and Freddie Mac.
The Congressional Budget Office estimated the bill could help as many as 500,000 homeowners and would cost the government an estimated $2.7 billion.
I lost 40,000 in the stock market since January. Can they bail me out, too? Excuse me this is ridiculous.
The phones are quiet. I'm working harder - and seeing less results. These factors speak volumes. My listing portfolio is full. My pending file is not.
I would be shocked if this were true today. I am 25 and do not know anyone near my peer group who is currently in a home they expect to "eventually own (free and clear)." Rather, I suspect an overwhelming majority of at least young buyers--say just out of college-age to 35--buy a house expecting to be there for 5-10 years. In this respect, "short-term swings" (meaning price changes expected in the next five years or so) are vital. Many reputable sources now predict home prices will fall by 20% or more from 2007 highs. This would be devastating to these purchasers' net worth. It's easy to play "Old Man River" and lean back in a rocking chair describing the way things were, but my generation is significantly more mobile than those preceding it, and few view their current homes (or jobs, or geographical locations, for that matter) as long-term investments.
I also think Realtyexec's last post understates the issue. Jared said he would have "been in a world of hurt" had he paid asking price for a California condo in 2005. Exec replied that this would only be true if Jared had a 3-5 year ARM, but not if he had a 30-year. How is this accurate? If Jared would have paid asking price, he would be in the same position that has led millions of people to foreclose--after the value of his home fell, he would wake up and realize that he owed more on his mortgage than his home was worth. When Jared's condo's depreciation has caused what was a $300k asset to fall to, say, $250k, what incentive does Jared have to pay the bank on the $275k loan he owes it? Not all current foreclosures are people who are pushed to it due to costs they can't afford; some simply walk away because the math makes sense.
In any case, I don't think chanting the "your home is a long-term investment" mantra is speaking to potential buyers like me. I can grant you the fact that I could buy now, lose in the short term, but then (if I'm very optimistic) gain the loss back within, say, five years. OR I can wait 1-2 years, buy then, and what was equity recapture is now pure equity gain. Either way, as long as it is true that prices are falling and will continue to fall in the short term, it makes no sense for buyers like me to rush to the market.
Jer and Exec, thanks for your thoughts-- I respectfully disagree but appreciate your comments.
The housing market is such a horror show, that a case for it really doesnâ€™t have to be proffered anymore. Itâ€™s obvious, to even the casual observer, that there is a nationwide downturn afoot. Doubt it? Open a newspaper, friend. Ooops, I forgot â€“ newspapersâ€™ are causing the real estate downturn.
But, â€œItâ€™s Different Hereâ„¢.â€ But, â€œReal Estate is Localâ„¢.â€
The credit bubble that spawned the run-up in housing was national in scope. This is why markets that didnâ€™t have prices skyrocket are still experiencing a downturn. Itâ€™s the debt levels/foreclosures, stupid.
I will say that we are so far from the bottom that Realtorsâ„¢ will pine longingly for the terrible market conditions we have today and count themselves lucky to have experienced it so good.
Foreclosures were up every month over the last 27 months, year-over-year. March 2007 to March 2008 saw foreclosures rise 57 percent. Think about that for a second. To even suggest that this market is anywhere close to bottoming is plainly ludicrous. The trend down is accelerating and Realtorsâ„¢, quite humorously, are calling a bottom.
Hello, Titanic deck chairs? There are some Realtorsâ„¢ on the phone that would like to rearrange you. Can we show you this weekend?
Great thread, by the way.
Dann, I am not a professional, but I had the same question--I have been casually looking at Chicago listings for the past year in anticipation for my move to Chicago late this summer. Among all of the national reports, it didn't really seem like I was seeing any change in Chicago's (more local and specific) listing prices. But my most recent research (assisted by a few others on this site) indicates that this doesn't tell the whole story.
First, Chicago prices HAVE fallen. According to the Case-Schiller price index, Chicago home prices have fallen 6.6% in the past year. This may not seem significant in the abstract, but if we assume John Doe has a $500,000 home, he has lost $33,000 (more than many peoples' salaries)--in ONE year. The optimistic answer is that one's home is a long-term investment, so one should not focus on short-term consequences. But the fact is, the home IS an investment, it is an asset (for most people, their biggest asset), and people cannot and should not gamble with obviously stupid investments. Would you buy a stock today if you were reasonably sure it would lose $33,000 of value within the year? Of course not, and that partly explains why people aren't buying.
Of course, this data reveals the past--if home price trends were changing, buying now would make sense. But trends are not changing--in fact, prices are now declining at their fastest rate yet (Case-Schiller's most recent data indicates that Chicago prices fell 2.2%--or $11,000 on a $500k home--in the last MONTH; if this rate is annualized, meaning we assume price declines do not further accelerate during the year, we see that Chicago home values are now falling at a rate of more than 20%/year, equating to a more than $100,000 equity loss for a person owning a previously-valued $500k home).
The studies I just referenced (link below) are based on raw home price data, and the chart on the first page of that report graphically shows this shocking trend (thanks to John the Bruce for the website link).
Based on my research, there is no reason to believe things are improving. According to RealtyTrac's February data, Chicago was second only to Las Vegas in foreclosures last month (so much for hoping this problem was limited to the coasts). The impact of these foreclosures have not yet been felt.
While listing prices superficially seem to be stagnant and not dramatically declining, the fact is that homes are not selling right now--at least not at high enough rates to be optimistic. My wife and I are mostly searching homes in the north/northwest part of the city. According to Trulia, this entire area (including, in my search, the neighborhoods of Lincoln Square, Ravenswood, Northcenter, Uptown, Edgewater, and Roscoe Village, from a price range of $585,000 - $775,000) has had a total of ONE property sold since January of this year. Fifty homes in these neighborhoods and in this range are currently on the market.
In short, my wife and I want to buy a house in Chicago. We are blessed to be able to buy, and we'd love to be able to settle into a house in our new city and not have to go back to renting, worrying about moving again from a rental unit to a house, etc. But we can't force ourselves to be unwise with our money, and every single objective, reliable indicator tells me that buying a house now would be like buying Enron stock seven years ago while KNOWING what was about to happen. It is just irresponsible, and that's why we (and many others, it seems) prefer to wait this one out.
I post "don't buy" advice all the time. Deep in my heart, I hope client's will remember my advice and come look me up when the time is right. I know I've suffered a huge downturn in my real estate business for my accurate predictions, but, I also made a ton of money by seeing this collapse coming, so se la vie.
So, by being correct, quite a few people have accused my of being arrogant. [see below on this thread]
Anyways, lets examine a few facts:
1. unemployment. we lost another 250,000 jobs last month. In fact, the number of people jobless for more than six months went up by over 500,000 people. The NITWITS have seized on the unemployment number, which went down by 0.1%... Hey unemployment got better! Well, this is where my intelligence, and no doubt arrogance comes in: Want to know how unemployment got better, while jobs got worse? More people quit looking for jobs, and just gave up, than lost their jobs. You only count as unemployed if you were actively applying for jobs...
2. $8k tax incentive. Its about to end. In fact, since a loan takes a good 30 days to end, we are going to see the start of the end of buyers hoping to use this at the end of September, as it will be practically impossible to get their escrow closed on time after that. Well, if an incentive helps housing, what does it ending do? It is the same as if suddenly some buyers got charged an extra $8k to buy!
3. Interest rates. Yep they are low. They are low because the FED has bought 250 billion dollars worth of long term bonds. Do this forever, and you get a Zimbabwe currency collapse. The original program was slated to buy 300 billion, and end the end of this year. So, without change, we get rising interest rates for mortgage by january. What will higher rates do to prices again?
4. Foreclosures. In Phoenix, we went from 23,000 homes in foreclosure (notice filed, not foreclosed yet) to 47,000 this year. Obviously, homes just can't sit there in limbo forever. This is all inventory coming, and given 1,2,3 above, it could actually come when buying has dropped from today's frenzy levels. These numbers are even worse in California which passed a 90 day wait to foreclose, and Vegas which has passed some legal changes to requirements to foreclose. So suddenly, "markets are balanced" well, nitwits, you can't just legislate this problem out of existence, any more than you can make hot weather in Phoenix's summer illegal!
5. Rental rates. Dropping, vacancies at record levels. Today's investor will be able to suffer through, by dropping rents, but that will force a ton of the last 8 years investors, or owners trying to rent 'till the market gets better' into such worsening cashflow positions, that many will give up the fight, adding to foreclosure.
When I write these things, I get accusations that "I'm not an agent" or "why are you in the business if you have such a negative view" Whatever, look up my license if you care, and show me where it says you have to have no brains, or lie to be an agent, and then I'll start posting postie market outlooks!
In fact, I've been looking at a few of JohnP's posts, since I know I can count on him for original, not plagiarized content. For example, let's see how he responded to a home seller's questions about what they should look for in a Realtor - you should be able to find JohnP's post a few entries down
I've also pasted it below (in case he were to, for some crazy reason, delete it) - hopefully I've clearly explained where I found this content and haven't violated any of JohnP's copyrights:
In the Davie area, we have so many great Realtors that do wonderful job. Candance, here is a questionaire to help you:
1. Do you work as a full-time Realtor?
2. Do you have a full-time assistant?
3. In what area and in what aspect of the market do you specialize?
4. Do you have a written marketing plan specifically designed to sell my house?
5. How often do you market properties directly to buyers?
6. How many properties have you sold in the last three months?
7. Will you produce a professional flyer of my home with a picture displaying my home?
8. How often will I hear from you after my home is listed with you?
9. I cancel the listing if I donâ€™t hear from you as the schedule dictates?
10. What software do you use to track those activities being used to market my home?
11. How do you find potential buyers? Do you have a system to identify potential buyers?
12. What other marketing techniques will you use to get my property sold?
13. In what ways do you encourage other Realtors to sell my property? How do you network?
14. Do you attend local Realtor gatherings? Which ones?
15. How many listings do you have? What percentage of them sell? In the past?
16. Do you have a personal marketing plan? Describe.
17. Do you have a personal website?
18. Do you have a permanent E-mail address?
19. What presence have you developed through your marketing?
20. Does your company have a website ?
21. What does your website link to?
22. Do you have listings on Realtor.com? Are they Showcase Listings?
21. Does it link to your personal website or homepage?
22. Do you have a list of references I can call?
23. What automated communication tools do you use for 24-hour access and service?
24. Do you have a database of qualified buyers for my home?
When interviewing agents, understand what services they offer and what services you are interested in. These questions are designed to tell you if an agent is taking the listing for another reason than getting your property SOLD!
I hope this helps.
The Barbara Blais and Sherry Fell Real Estate Team.
Keller Williams Properties
Weston, FL 33326
Great advice JohnP - I'm glad to see that your years of experience as a Realtor have helped you come up with this questionnaire. But wait, that list seems somewhat 'familiar' - perhaps that's because it's practically verbatim plagiarism (COMPLETELY unattributed) from this site:
Perhaps JohnP should spend a bit more time worrying about his own copyright violations, rather than worrying about John The Bruce's postings.
1) Gas at $4.00+ per gallon
2) Iran testing missiles twice this week
3) Israeli warplanes practicing in Iraq
4) Iran threatening to block oil shipment from Gulf if attacked
5) Fanny and Freddy tanking, possibly needing Federal assistance/bailout
6) Stock market at risk of falling below 11,000 (currently at 11,062 and down 166 on the day)
7) Presidential candidates talking about modifying or eliminating mortgage interest deduction
That said, it is true that I dislike many Realtors. I dislike them because you're a Realtor. I dislike them because you (and so many others) disavow any responsibility for the advice you give, claiming it's the buyer's own fault for doing something stupid, even if your advice contributed significantly to their decision.
I dislike them because they insist on getting compensated in a manner which only rewards sales. If you were paid as hourly consultants you'd have no reason to remain ignorant of the downsides of the mixed blessing that is property ownership. But as it stands, you have strong financial incentive to pretend those downsides don't exist, and to downplay them publicly, and as Upton Sinclair quipped: "It is difficult to get a man to understand something when his salary depends on his not understanding it."
I dislike them because in my experience, they're greedy. I ask to see houses in one price range, but as soon as the Realtor sees my financial statements that go in with my first bid, they start showing me houses that cost hundreds of thousands dollars more than what I'm interested in. Hoping that I'll fall in love with one of them, make an emotional decision, and give them a nice payday.
I dislike them because of the many Realtors I've dealt with, I've had good experiences with a grand total of two of them. And I wish that the good ones would stay, and reform the trade, and that the bad ones (read: you) would just go ruin something else.
You are going to find this on most real estate boards. There are always going to be people that think your service is useless. If you are making good money, then let the criticism fall on deaf ears as the money shows that somebody values what you do. The only alternative is to go to a site like activerain.com where everything you say is praised by 10-20 other realtors.
I look at the real estate profession the same way I do any other, there are times you need professional help and times you do not. I will attempt to fix a sink, but will hire a plumber to move a gas line. I will paint my living room, but will hire a painter to paint the more difficult areas. And, to use analogies that people on this board seem to love, there are contracts I will sign by myself and others that I will have reviewed by a lawyer. There are injuries and sicknesses I will treat myself, and ones that I will seek professional help for.
I did not use a realtor to purchase my last house. I knew the market very well. I knew what every house in the neighborhood had sold for in the last year, I knew the school system, I talked to the local selectmen, asked questions to local policemen, etc... The house came on the market and I made an offer through an attorney. I knew the contingencies that I wanted included in the offer, and I had them added and they were agreed to. At the end of the day both sides were happy with the transaction. However, if I were moving to a new town that I was not as familiar with, there is no question that I would hire a local real estate agent to help me with the process.
1.) The LA Times reports an estimated loss of 6 trillion of housing value, equaling approximately $85,000 in losses PER HOMEOWNER in 2008 alone. Annual rate of price declines was 24.9%. Go to the LA Times web site and search on "LA Land"
2.) The Economist shows that 2007/2008 are the worst EVER years for house prices since the 1920's (go to the Economist website and search on "Dropping like a brick")
Comment on realtors: from what I can see the non-realtors had the most professional answers. Links to hard data, facts, and very little if any "hype" in their messages. Its too bad paid professionals (realtors) could not provide such valuable information.
Hope this helps all of you with your decisions.
I know that market actors have to demonstrate some modicum of optimism, but to say that â€œnow is a good time to buyâ€ or that â€œhousing is always a good investmentâ€ really paints you, and those like you, as myopic and totally driven by self-interest and plain-old selfishness.
Here are some very simple facts that a lay person, like yourself, could easily understand, and when taken with a dose of common sense will lead you to one undeniable conclusion. The conclusion being that now is not a good time to buy.
â€¢ Per U.S. Census Bureau there are over 2.3 million vacant homes - right now. In absolute and percentage terms, thatâ€™s an all time high.
â€¢ The number and rate of foreclosures is increasing. 57% increase this March and 65% increase this past April, versus the same months last year.
â€¢ A large swath of ARMs (option adjustables) have not experienced even their first adjustment yet. I.e. the party is just getting started, friends. This feeds into the first two points above â€“ negative feedback anyone?
Until this (increasing) slack can be taken up, thereâ€™s no point in discussing a bottom or thinking that itâ€™s a good time to buy. We wonâ€™t be there until these vacancies and foreclosures work their way through the system. Try 2010 or 2011â€¦maybe. If the government gets involved, the bottom will come later and the pain will be more severe.
Yeah â€“ but I can hear your response already. Again. â€œReal estate is localâ„¢!â€ and â€œItâ€™s different hereâ„¢!â€ Even the lurking non-posters (your audience of fence-sitting buyers) are laughing at you when they read the RealtorÂ® responses.
I hate to break it to you, but the credit bubble that drove this market was national in scope â€“ and thus, so is the downturn that weâ€™re experiencing. Surprise! Even markets that didnâ€™t have huge run-ups during the 2000-2005 mania are experiencing downturns now because of it.
Hey housing bears â€“ how much have you saved in your markets BY NOT BUYING IN 2005 OR 2006? Personally, itâ€™s garnered me a 20% return. Median prices in my area have come down that much from then to now. And that 20% is conservative because it doesnâ€™t factor the returns I earn by employing my capitol outside of housing.
Maybe that will be a new threadâ€¦
Old motto: The time to buy real estate is today not tomorrow. If you plan to buy and hold, why not?
Renting does not give you write-offs if you are in a higher earning bracket now or in the future.
Don't try to over anyalyze the market - there are good buys out there right now. If you have good credit,
your're in the driver's seat.
Good luck and don't wait too long.
Sandra Bolcar, Broker Associate
RE/MAX VILLAGE SQUARE
Upper Montclair, NJ 07043
Check out the prices on active and recently sold homes in North Jersey here;
Government data released today states that the number of vacant homes increased by 1 million units over the past year to a new record of 18.6 million vacant houses. Link below.
Just another number that should be ignored by the home-buying public IMHO.
2. If you plan on staying put for a while and would like security knowing your price for living is fixed and you wont have to worry about a landlord selling your residence, raising prices, or forcing you out
3. If you can find a place that, after the tax breaks, would be similar to the cost to rent a place of similar size
Those are 3 reasons now would be a good time to buy. If you don't plan on staying put, don't like to stay put for too long, or can find a place to rent that is cheaper then I would advise renting.
1. If I rent, I'm looking at payments of about $1,300/month. To buy a comparable home or condo, my monthly payments would be right about $2,500/month. So while I am not building equity in a home by renting, I am building equity in other assets--namely, the $1,200 each month that I will save and put into savings, 401(k), etc.
2. Your explanation assumed a 5% depreciation this year, then a rebound next year, meaning I would (hopefully) recover the loss within about five years. But what if depreciation is not 5%, but 25%? Reports show Chicago homes lost 2.2% of their value this January alone, and the rate of loss was accelerating. Even assuming the January rate is constant for this year (and does not continue to accelerate), this equates to a much more than 20% price drop this year. (Meaning a $500,000 condo is worth $400,000 after one year; also, if one put down a 20% down payment--or $100,000--one has lost her entire savings by the end of the year.) Even if we were talking about a 5% drop this year (which all forecasts I've seen say is extremely optimistic), that is a $25,000 equity loss in one year, assuming a $500k home. Given this, why wouldn't I just wait a year? Why would I buy if I was certain I would lose (at least some) equity?
This is the heart of my thread question. If we know prices will fall, why should we buy?
Los Gatos, CA is clearly a very desirable neighborhood, and as such was likely one of the best real estate investments possible. In fact, it's such a good investment that somebody who makes a living by convincing people to purchase real estate cherry-picked it for an anecdote.
And it's true, that's a very good return, better than the S&P 500. But only by the slightest amount. If that house had, in fact, been bought in 1958 instead of 1960, then his "fantastic" example is only as good as the S&P index. (And that's excluding the fact that the homeowner paid a significant sum of property taxes over the years, above and beyond basic maintenance.)
So I suggest people listen to Jerry Murphy, and recognize that if you're really lucky, and choose a quality house in a good location, then you'd still do better putting your money in the market.
Savvy investors will buy enough home to meet their needs, and invest the rest in a diversified portfolio. Realtors don't want you to be savvy.
This kind of writing/lack of thinking is why agents are becoming hated. Nobody ever needs to buy ever. People need shelter, and they may want to own it, but confusing wants and needs is what has brought america to its knees.
Also, people relocated to Phoenix in 2006. did they need to buy home, only to watch the prices drop 50%...
I love the agents who say "there is never a bad time to buy housing..." WRONG! over the last three years, it has been a bad time to buy housing, period. In some areas, a downright terrible time to buy.
Or the agents who say "it depends on your particular circumstances" Really? what particular circumstances would make buying a home for $400K only to watch similar ones sell for $200K 2 years later ok? "honey, its alright we lost $200K, after all, we wanted a bigger home two years ago!" For the mathematically challended, that is aproximately 10 times the "money thrown away on rent" that someone renting the home would have experienced...
We are at best, half way through the current crisis. The data, probably too confusing for many on this thread to understand, are in my previous posts... Ignore it at your own peril.
IF what you think sounds really really stupid, when you say it out loud, try thinking harder!
"buy now, because rates will go up" aside for the fact that most agents said the same thing in florida, california, arizona and nevada last year, and anyone buying on their advice got absolutely killed: prices dropped by 30% and rates went down another point... we must return to a simple fact:
buying because rates might go up is a terrible decision!!! why???
House prices are dropping due to affordability: Not enough buyers qualify at today's payments. If rates go up, even fewer buyers qualify; Now, I know economics is a bit much to ask, but a drop in demand will lead to a drop in equilibrium price.
So, if rates go up, home prices will simply drop further. And, buying at a lower price/higher rate has several advantages: 1. You aren't upside down. Should life throw a change at you, you can sell and move on.
2. You can pay extra money to the principle, and get a higher return. On a 5% mortgage, each extra dollar you send is earning 5%; On a 7% mortgage, each extra dollar is earning 7%. 3. You can pay the home off more easily, as it will take less money (the lower sale price) to do so.
Professor Ribas (mathematics, econometrics)
1. foreclosures still increasing.
2. job losses.
3. the highest number of vacant homes ever. almost double the normal level.
Buy now, watch the price drop. It really is that simple.
"don't wast your hard earned money on rent" thats right! waste it on taxes, insurance, maintenance and interest. That whole argument makes me ill, unless you live in your car, or with your parents, you pay for shelter. Plain and simple.
Read my blogs, learn how to evaluate a market, and don't get suckered in by muddled marketing nonsenes like this!
Chris, I don't have a huge sample size, but I have now worked with 8 different realtors at points in my life. 7 of them have been what you would describe as bad apples. They upsold, showed us things out of our stated range, did not have 1/3 of the expertise Nicholas described below etc. You say there are a few bad apples, I say based on personal experience, and A LOT of time on these boards, that there are a few good realtors, but most are utterly useless and do a disservice to their clients. The barrier to entry for the profession is less than a bus driver in most states and the NAR membership skyrocketed during the bubble and is still very high.
"you're not paying the commission. Stop worrying about everyone else's compensation." Not true, the seller's price includes the 6% they're paying, so the buyer is paying that. And why should anyone stop worrying. When you have useless representation or representation that is actually a disservice, and you're paying 10s of thousands of dollars for that representation, you should be very upset.
"Prices are great, rates are great and there's plenty of inventory to select from. I don't see anything wrong with that." Price are great? Compared to what? How do you qualify that? Rates are great? Qualify that. Justify these statements. The fact you don't see anything wrong with it is a large part of the problem.
"Try not to clump ALL Realtors into your BS accusations. What do you do for a living? Let's switch gears and bash your profession..." You don't have to clump all, just most. Forbes survey on profession by prestige has realtors dead last. These opinions are not realtor bashing, they are what a large segment of the country believes.
As a homeowner that is thrilled with what I now own, I am neither buying or selling at this time since we have been able to tailor our current paid off home over the years to meet our needs and wants without the need for additional loans.
My wife & I bought our single family home 19 years ago which is situated in a small but independent village on the upper northwest side of Chicago. Being married only two years with a daughter, we lived in apartment (we hated apartment life). Since both of us had a clear understanding of the difference between our "needs and wants", we were able to form a household budget and stick to it that allowed us to save a 20% down payment on a single family home with a 30 year fixed conventional mortgage. At that time in the late 80's, the interest rate was 9.5%. None the less, both of us made the concessions necessary in our lifestyle to make it happen and bought a modest sized single family home after two years of searching. The home was not the largest on the block or the smallest but had everything we basically needed to provide a more permanent family setting to raise our daughter. The area offered convenience of an urban setting with a small community flavor including an excellent public school system.
While we watched many of our friends trade up to more expensive homes in the area in the mid 2000's, we focused our effort on paying off our mortgage early. In less than 11 years, we had a mortgage burning (over 8 years ago) simply by making double payments when we could. Since the mortgage burning I still make what I call a mortgage payment, except we aren't paying interest to a mortgage company, instead we are making interest on our diversified investments, and enjoying buying those "wants" that we have worked and saved for over the years. Many of our friends overbought on larger homes, and are scraping the barrel attempting to make ends meet.
I have to admit we did look at the possibility of purchasing a more expensive home after payoff, but in 2004 we ended the search. After being outbid by buyers with offering little or no money down, offering the sellers steep asking prices for cheesy rehabs, we ended it. I do thank those buyers. They did us a huge favor. When my wife and I would return home after a showing, we would click our heels stating "There's no place like home".
The moral of this story is that the residential market has always been up until a few years ago, an investment that must be budgeted well within means for those wanting to buy a home, raise a family, establish home equity over time, and be independent. Many consumers have abused the privilege of home ownership by overindulging with a lifestyle well above their means by being suckered into risky credit options as a crutch. Others have abused the system for profit including flippers, rehabbers, lenders, and contractors to satisfy greed.
Our daughter will be graduating early next year with an extended education and degree which her mother & I paid for out of pocket without financing. Hopefully she will enter the world with a high level of money management common sense skills. We are looking forward to the upcoming "empty nester" years. Our current home will easily take us into our retirement years.
I called my parents yesterday who grew up during the depression and said, thanks Mom & Dad for your constructive advise through the years. Remembering my Dad's quote: "You aren't a home owner until the mortgage is paid off. You are only renting a roof over your head from the bank".
My speculation is the market will take a number of years to regain and sustain solid ground returning real-estate to it's intended purpose.
Bill, your posts are very polite and well written, but they don't seem to make any sense. The overriding theme I can get is that Realtors are always good, positive and helpful, and if you call them on any BS they spout, you're a know-it-all.
In your question to John the Bruce, you said, "I suppose in your job you are completely straighforward and never have your own financial interests in mind. RIGHT?" I'm sure this has come up, but if you do that, and someone knows better and calls you on it, you look like an a$$hole. That's the way it goes. You can't just dismiss it with a wave of the hand and saying, "Anyone buying a house should do their research and know what they are getting into." Of course they should, that doesn't change the fact that when you enlist the help of a professional, and that professional lies to you, and feigns ignorance, that they should not be taken to task.
Youâ€™re quoting from my profile, just so people know where this is coming from.
I think we can agree on some things here. I agree about the appraisalsâ€¦not sure how to make them independent, but I agree with the principle.
How to prevent the next credit crisis/housing bubble/mortgage fraud spree in 4 easy steps.
â€¢ All loans underwritten at 80% LTV, i.e. buyers have to put 20% down.
â€¢ Debt to income ratio (documented and verified during underwriting) no greater than 30%.
â€¢ Any type of variable rate financing permitted only if the borrower can qualify with a fully amortizing 30 year mortgage at prevailing market interest rate.
â€¢ Entity underwriting the loan (bank, broker, etc) must hold the loan on its balance sheet for 10 years -or- half the loanâ€™s term, whichever is less. Good-bye moral hazard.
In summary, itâ€™s a return to â€œnormalâ€ underwriting principles.
In reality, if you forced the last point you wouldnâ€™t have to bother with the others as banks would rediscover how to safely make a profit in making loans. Theyâ€™ve done it for hundreds of years prior to now, right?
When you have banks and brokers making their earnings just by getting the money out the door and not worrying about repayments because theyâ€™ve already sold the underlying loan then youâ€™re going to have problems.
Yes, if we pretend that the real estate downturn isnâ€™t happening, Iâ€™m sure it will go away. Thatâ€™s the most patriotic thing to do.
The FBIâ€™s arrest of those persons involved in mortgage fraud shows the system, as it stands, works. We just need to allocate more resources to the enforcement of the laws on the books â€“ as they pertain to mortgage fraud.
Tamara â€“ welcome. Great points and a great summation, BTW.
I have been an agent for almost 30 years and I work with the interest of my customers above my own working 7 days a week showing as many homes as necessary to find the "perfect fit." Most of my customers are grateful and that is rewarding. I take objection to anybody who insults our profession based on a small percentage who could give our industry a bad name. You don't have to be a brain surgeon to be a realtor, but you needs loads of personal skills thats transcends sitting behind a desk jiving numbers.
Thanks, Bill Jacobs, for your logical thinking. To answer a couple of earlier comments from Chandler and John, there is never a perfect time to buy or sell real estate because housing is a necessity not always a luxury. You don't need Economics 101 to figure that out. And yes it does depend on the area. Montclair NJ is a relatively healthy market where some towns next door are idling. There is no rhyme or reason to the real estate market --it's like water seeking it's own level. Economic up turns and down turns are always going to part of our economy. Anyway, what is the alternative? Do you have an answer?
To respond to your cheeky comment, the people who purchased my parent's home in 1987 for $250,000 sold it for $480,000 in 1999. I don't think they were really thinking that much about how much more my parents prospered when they bought it. I will always advise people to buy their shelter first and then invest in other stuff. Interest and taxes are income deductible and if the home does happen to appreciate relative to how much you have spent on I.T.I. and added income tax savings let's say over a 10-year span, then you have basically lived for free - BUT YOU ONLY REALIZE THIS WHEN YOU SELL. So you sell low and buy low or sell high and buy high. What's the differerence unless you are 1st time homebuyer. It's just too darn complicated for the lay person to wrap their head around.
Let's get a bit more technical. My parents sold their home in England in 1968 for 8,000 pounds when we emigrated and the British pound was worth $2.50 to the dollar (deflated more than it is now.) My father had $20,000 in purchasing power in the U.S. In 2000, our old house in England was selling for 550,000 pounds (roughly $1.1 mil for a 1,800 s.f. home). Now put that in your hat and smoke it!!!â„¢ (An old English idiom for those not in the know) Should we should have stayed in England? Not on your Nelly!â„¢ Changing countries, owning a home-- it's a lifestyle we chose without a crystal ball. It's a dream in any country, any language.
So, crikey mate, just keep renting and we'll be happy to sell real estate to the investors who rent to you. By the way, what happend to my Lucent stock??
Check active/sold prices in your town (Northern NJ only)