To Buy or Not To Buy, That Is The Question

The housing market has changed dramatically in the bubble markets since the summer time. Back in the summer bidding wars were common and inventory was very low in the bubble markets. Those days are long gone.

Today, a new reality faces both buyers and sellers. Inventory has increased rapidly in the past 4 months in the bubble markets. In Phoenix, inventory rose from 10,748 on 7/20 to 27,684 on 12/17 according ZipRealty and Bubble Markets Tracking Inventory. Some real estate agents are even claiming that is it a buyer's market due to the increased inventory, lack of bidding wars and the small reductions in prices.

So is it a good time to buy in the bubble markets?

Real prices will continue to decline in the bubble markets for many more years. The bubble markets will experience price decline of at least 20% in real dollars [inflation adjusted] over the course of 3 years. In most bubble markets, the peak price was reached in June, July or August of 2005. Many bubble markets will experience real price declines much greater then 20%. Some may experience price declines of 60% in real dollars over the next 3 years. Of course some markets may keep on declining for more then 3 years.

Just as importantly, monthly rents are cheap compared to buying in the bubble markets. Buying in the bubble markets generally costs 1.25 to 2.5 times the cost of renting ( for a similiar property; assuming 30yr fixed, solid credit, property taxes, and typical interest rate tax deduction). Each month hundreds if not thousands of dollars can be saved and invested.

Buying in a bubble market does not make financial sense. As housing inventory continues to rise and prices decline there will be lots of buying opportunities in the future. This is not a seasonal dip. If you earn a reasonable income it is an absolute fallacy that you need to "Buy now or be priced out forever." Renting and waiting is fiscally prudent. Don't be fooled.