I’ve said it my self hundreds of times in the last 12 months – it’s a great time to buy. How could it not be a great time to buy – tons of inventory, prices have come down, interest rates are still low – of course it is a great time to buy. Or is it? Whenever I shout “it’s a great time
to buy” in a particularly loud fashion (generally quoted in the local newspaper), I get an e-mail from some intelligent sounding person saying, “no it isn’t.” Here let me give you the latest example that was spurred by a front page story on a local promotion to promote first time home buying:
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Let me see if I have this correct:· House prices are falling;· Houses are not selling at a rate which will supportrealtors, because no one wants to buy a depreciating asset;· So, realtors want to sell more houses;· Therefore, they target first time buyers, whopresumably know the least about the pitfalls of homeownership and are the most likely to try to ‘catch a falling knife.’ · The lines they use in their propaganda are the sameused nationally in every newspaper article on housing which publishes a realtor quote, to-wit “now is a great time to buy,” or “it’s a perfect storm.”Why do I find this reprehensible?
In case you did not read the story I linked, just suffice it to say that we are doing a major local promotion to educate new home buyers on the new issues with financing and promoting them to purchase a home from the massive inventory. Self-serving, yes, but there are also great benefits for sellers, mortgage bankers, others in the real estate business, and for the general economy. Locally, people look to us to lead and that’s what we are doing. Fortunately, our local economy is insulated from the national issues that are present in other areas.
The real issue in this rant is the claim that it is NOT a good time to buy because “no one wants a depreciating asset.” Of course every market is different and prices have fallen here in Charlottesville (latest market report), but calling a home a depreciating asset seems unreasonable. Homes have a long history of being an appreciating asset and a significant price correction does not a depreciating asset make.
I stewed about this comment over the weekend and then came to the conclusion that there was a hint of the truth in this person’s statement. Maybe I’m rationalizing, but here is what I came up with…
Homes are not a depreciating asset, but some are still over-valued and will have to decrease in price before they sell. The ones that are over-valued are easy to find because they have been on the market for a long time. Some sellers have refused to embrace the market dynamics of over-supply or to accept the fact that the market was ridiculously over-heated in 2004-2006.
REALTORS® have had a tough time convincing sellers of the current market dynamics for pricing. It is simply hard to rationalize that a home worth $500,000 in 2005 is now it is only worth $450,000. Does that make it an depreciating asset? When you consider that the seller purchased the home for $300,000 in 2000, that is a hard argument to make.
So, is it a good time to buy? Yes, but only if you buy at the current market value and not the 2005 market value and you plan to hold the property 3 to 5 years. Is it a good time to be a buyer? Maybe. If you like lots of choice, are willing to do your homework, listen to your agent’s advice and keep your emotions in check, it is a good time to be a buyer. If you are a seller and you are resisting pricing your property according to the current market, you need to read this list of things that do not determine your property value.
Dave Shafer says:
Consumer psychology is a very interesting subject. Consumers tend to think short term, very short term. That is why your e-mailer is able to make his claims. I blogged on this a while back: http://shaferfinancial.wordpress.com/2008/01/24/glass-full-vs-glass-empty-re-real-estate/
Part of my mission is to educate people about investments in general, including real estate. The best way I have found is to encourage people to think longer term and to think globally. In the real estate world this means looking at a 10 year picture for primary residences and a 20 year picture for investment real estate. Make them understand the same things that caused them to live in Charlottesville will encourage others and this will continue to be the backbone of a vibrant real estate market. Having spent a summer in Charlottesville many moons ago, I know how nice it is there. That is your primary selling point in my opinion. I think that being a good realtor means something other than simply selling as much real estate as possible. You need to manage expectations as best possible and the article is doing that. The flip side is you need to be on the other side when the market is overheated as values go through the roof calling for some restraint!
April 22, 2008 — 6:18 am
Cheryl Johnson says:
OK. I’ll ask the loaded question. Dave, would you ~personally~ buy a home for ~your~ family in this market?
Okayfine, if for some situational reason, you ~had~ to buy right now.
But what if you didn’t ~have~ to? What if you could comfortably remain in a nice little rental house for a couple more years? Would you still buy right now? Based on a realtor trade association “educational campaign”?
All the global and long term arguments will still be true two years from now…. maybe even truer…
April 22, 2008 — 7:32 am
Dave Shafer says:
That’s easy. Yes, here in St. Petersburg. If you look at any 10 year average of real estate prices you find significant price appreciation. And here in Florida we have many booms and busts historically. Now, if I felt that I am likely to not be here very long, then the answer is no, only because the transaction cost and liquidity issues.
Now if I am looking at buying into Flint, Mich or any other area where jobs have been disapearing then the answer in no. That’s what I mean about thinking globally.
Charlottesville is a beautiful area with a major university anchoring the economy. It’s a no brainer there!
April 22, 2008 — 8:16 am
Dave Phillips says:
Dave S stole my answer. Long-term, buying is way better than renting. Now, since I already own, a tougher question is “would I be willing to sell and buy a residence or invest in a second home?” That’s actually two questions…
No, I would not sell and buy a new residence based on my own situation – getting ready to be an empty nester, but not ready to downsize just yet. If you already own in this market, you should jump in if your lifestyle/wants/needs dictate it, but you should stay on the sidelines if not. If you are a renter and plan to live in the property for at least 3 years (more is better), it is a great time to buy.
As for investing in a rental property or vacation home. Again, long-term is the key. Also, your personal wants/abilities. If you shop carefully, there are some great deals out there, but realize that all properties for sale right now are NOT necessarily a good deal.
Do your homework, buy now and then call me in 5 years to say thanks.
PS: there are some great deals in Michigan, but you will need to be able to hold on to them for a while (and accept a fair amount of risk) to make it work. Basically, there is only one direction the real estate market in Michigan can go – up.
April 22, 2008 — 9:02 am
Teri Lussier says:
Working in Dayton Ohio… Yeah.
People here still want a place of their own, regardless of the market, and the all facts and figures that I give them and discuss with them- make no mistake- we do talk about the truth.
People want to own property and all that home ownership entails. I do everything in my power to be honest with the risks as well as the rewards, and then I help them buy a home. Is that reprehensible? I don’t think so.
April 22, 2008 — 9:28 am
Greg Swann says:
> Basically, there is only one direction the real estate market in Michigan can go – up.
That’s not a given. When I was a kid, my dad’s company had a factory in Brazil, Indiana. They were there because both labor and factory space where cheap. Why? Because the clay in Brazil, at one time the brickyard of the world, had played out. Peak population was 70,000. By the time my dad’s company settled in, it was 30,000. Houses still sold for money, but if you wanted one for free, there was a good chance no one would chase you off — particularly if you paid the property taxes. There are towns like this all through the midwest. The only way real estate values will recover is by inventory reduction — what Youngstown is doing.
April 22, 2008 — 9:59 am
Bawldguy Talking says:
Good time to buy? Perfect storm? Or my personal favorite, ‘There’s no way we’re not at the bottom.’
You two have been giving readers solid advice here. There are a handful of regions where even the perfect storm phrase fits, at least in my opinion. For instance, my firm has officially been shutout of Austin, Texas because of the strength of their market. The prices have RISEN so much it doesn’t make sense any longer. The builders who were asking me a few months ago if I wanted another pillow, won’t return calls. They’re selling their stuff off the street, and at higher prices to boot.
When areas see falling vacancy rates coupled with rising rents, and short market times for selling, the investor or home buyer may wanna take a more serious look.
The long term view is what frequently separates successful investors from the wannabes. Dave hit the nail on the head with that one.
Here’s one for you. If an investor only experiences an average of 5% appreciation for 20-25 years, and exchanges his investment a few times, when prudently indicated, what does his $30K initial investment on a $240-something income property grow to?
Even counting all the buying and selling expenses along the way, he ends up with a two comma figure.
April 22, 2008 — 10:23 am
Pavel says:
Charlottesville, VA area still has a competitive “micro market” for properties that are well priced (priced below competition). In the last week or so 4 of the homes I’ve shown to buyers have gone under contract within 1 week or less. This phenomenon is leaving some buyers very confused. I hear them say, “I thought we’re in a buyer’s market and I could take 2 months to make a decision regarding which home I wanted to put an offer on”. I see it as my job to educate my buyer clients on what is “being purchased” in our market place and prepare them to make a firm decision when the time is right.
April 22, 2008 — 2:04 pm
James Boyer says:
Here in Norther New Jersey it is most definitely a good time to buy. For the most part the local markets have stabilized, and in some cases prices are even starting to move up just a little bit, even though our markets never did implode like many other states.
April 22, 2008 — 5:41 pm
Tom Vanderwell says:
I tell you, every time I come visit BHB, I learn something more. I think it’s important that those of us in the business not only educate the consumer on the realities of the market but also take the time to look at their individual situation.
I told a friend of mine who recently relocated to Grand Rapids (near me) and was thinking of buying a house in a year or so that she really shouldn’t think about buying a house until she’s confident that she’s going to be here at least 5 years. In this market, 5 years would be a workable time frame.
It all depends on an individual’s perspective, needs and goals and that’s where a professional who puts his or her client’s interest first can really do well.
Keep it up, this is great stuff!
Tom
April 22, 2008 — 6:10 pm
Christina says:
Great article for the times. Here in Eastern NC we are seeing appreciation still on homes but of course not what it has been during 2004 season. As far as educating buyers, My moto has been and continues to be “Be brutally honest with people” let them know what the market is doing no matter what. Show them the numbers because numbers don’t lie.
Thanks again
Christie
April 23, 2008 — 9:00 am
E.P. says:
Where is the ‘bottom’ in terms of the housing values? I am in the San Francisco Bay Area and observe that West, East and Florida Coastal areas are where a considerable amount of the devaluation is occurring. Working as a relatively new loan officer with a longer history as a real estate agent reaching back to the 1980’s when the S&L crisis occured it seems to me that with the current sub-prime mess, LIBOR and banker’s ‘across the pond’ seemingly mis-reporting their true interbank lending rates, the odious pricing of GAS/OIL, CDO’s, CMBS, hedge funds and derivatives at issue not to mention the portention of a global recession/depression it appears to me the ‘bottom’ for residential real estate may reach conservatively to 2011 or maybe as far out as 2014 with Commercial (think strip malls etc.) trailing and beginning to experience devaluation once the economic global and American markets ‘correction’ has run it’s course a buyer who buys now and through the bottom and holds will see a future of real estate appreciation greater than the ’70’s, 80’s and even 90’s cycles saw since a global economy is at work.
I say it’s a good time to buy if you are positioned for the market opportunities of this/these ‘bear’ market/s.
April 27, 2008 — 12:51 am
Sarasota Real Estate says:
I bought a house in the middle of 2007. I still think it was a pretty good move. It is in a neighborhood that my wife was dying to live in. We bought one of the cheapest homes in the area. The sellers were desperate and priced it to sell. Are we upside now? Hmm…maybe..but not much. I know I am going to live here for a long time so it does not bother me much.
The home I sold to buy here was in a cookie cutter neighborhood that you see a million of. That houses has plummeted in value since I sold it.
In a perfect world I would have sold my old home last year. Rented until now or within 12 months from now as I don’t see prices dropping that much further in great neighborhoods and bought the home I am in now for less than what I paid. But, this is not a perfect world. You won’t time the bottom.
April 27, 2008 — 5:52 pm