Tuesday, January 24, 2006

Is it a Good Time to Buy?

Some are now claiming it is a good time to buy in the bubble markets. Real estate agent Jackie Alexander out of suburban San Diego writes over at Realty Times:

This is a great time to buy in La Jolla! The market has slowed to a normal market so there aren't multiple offers to worry about and sellers are showing some flexibility when it comes to price.
Inventory is increasing, and prices are generally falling in the bubble markets.

Is it a good time to buy?

It certainly is a better environment to buy now then at the peak (generally at the end of the summer) because there is indeed more inventory available and lowball offers might be accepted by certain sellers. However, prices will continue to decline in the bubble markets for many years to come. The typical housing unit located in a bubble market will decline more then 20% in real dollars [inflation adjusted] over the course of 3 years from the peak price.

Many bubble markets will experience real price declines much greater then 20%. Some markets may experience price declines of 60% in real dollars over the next 3 years. Of course in some markets prices may decline for more then 3 years.

It is very hard to predict when the real dollar price bottom will occur in a bubble market. But in most bubble markets we are a mere 4 or 5 months from the peak price. It will take many years for prices to reach bottom. There are still large price declines ahead in the bubble markets. Now is NOT the time to buy in the bubble markets. Be patient. Prices will continue to fall.


  1. No one five years from now will say, 'I'm so glad I bought in Spring/2006'.

  2. To be honest, no one knows how far this goes or when. Those paying attention will see the relative bottom just as the relative top was easy. That said, "great time to buy" will manifest itself when all of the ya-hoos at Realty Times have left the business. 'Nuff said.

  3. I think it's important to keep in mind that the "bottom" will probably occur when most everyone thinks that downward price movements are here to stay for several years.

    Also, I think it's important to understand the difference between forecasts for "real (inflation-adjusted)" home prices and nominal home prices. If you are an investor deciding where to put your money, you look at real return on your investment. If you want to buy a home for the next 10-15 years of your life, then only pro-longed decreases in nominal home prices, which few forecasters are predicting, should scare you. Meaning, even if real growth in home prices is flat, or even slightly negative, over 10-15 years, that doesn't mean that your home will be worth less than the original balance on your mortgage.

  4. I disagree with the previous poster.

    Let's take a hypothetical example.
    Joe makes 60K a year. He buys a house for 400K. In 20 years, it's worth 500K (nominally), but much less in real terms as the bubble in real prices has popped. He now makes about 80K, and has little savings because he has been making high house payments for 20 years.

    On the other hand, Joe could rent in the same area and save his money. With his extra savings, he can either make a larger downpayment in a few years, or move somewhere else where the bubble is not so intense. He has more money in the bank at the end of 20 years, a better view of retirement, etc.

    I am not saying this is what will happen, but you do have to consider whether the alternatives are better, not just whether the nominal price is higher.

  5. Only a 33% raise over 20 years? Sounds like a pretty crappy job!

  6. O.k., ao make it more. He still doesn't have as much savings as he otherwise would have, because he paid too much for his house.

    However, your comment does show an implicit assumption of many buyers over the last few years- that there will be enough inflation to help them make their house payments.

  7. So would it make sense to buy a home now if you were able to get a distressed or pre forclosure home for 20-30%below market?
    I sold all my RE here in vegas a year ago and have been renting. We need to move again in a month and to be honest I miss owning my home. That said I do believe prices could and will drop at a least another 10 and maybe 20% here in the Vegas area.
    (I believe prices here have already dropped more than is being reported)

  8. Couple of points. First, housing certainly will not bottom out before the arm readjustments of 2007. Second, although there is inflation in this country, it would seem that there is less elsewhere. So, maybe that 60,000 dollar figure will go way up or maybe it won't. Depends on if we were to have a depression, which no one wants but could happen.