To Buy or Not To Buy That is The Question

The housing market has changed dramatically in the bubble markets since over the last year. Back in the summer of 2005 bidding wars were common and inventory was very low in the bubble markets across the USA. Those days are long gone.

Today, a new reality faces both buyers and sellers. Its the Inventory Stupid! Inventory has increased dramatically in most bubble markets in the past 12 months. In Phoenix, inventory rose from 10,748 on 7/20/05 to 51,557 on 7/20/06 according ZipRealty and Bubble Markets Tracking Inventory.

Some real estate agents are even claiming that is now a "buyer's market" due to the increased inventory, lack of bidding wars and the small reductions in prices. John Riggins of John Riggins Real Estate in Honolulu said:

"America is officially into a buyer's market, so (there is) no reason to sit on the sidelines and wait for a price drop," Riggins said. "Just like home builders are offering incentives, more and more sellers are offering incentives such as holding the note, paying down the interest rate or assisting with closing."

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 declines of at least 20% in real dollars [inflation adjusted] over the course of 3 years [from the peak]. In many bubble markets, the peak price was reached late summer 2005. Most bubble markets will experience real price declines significantly greater then 20%. Some may experience real dollar price declines of 40% over the course of 3 years. Many markets may experience real dollar declining prices for more then 3 years.

Just as importantly, monthly rents are generally 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 similar 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 if one chooses to rent as opposed to owning.

Buying now 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. If you earn a reasonable income it is an absolute fallacy that you need to "Buy now or be priced out forever." In the Bubble Markets, renting and waiting is fiscally prudent. Don't be fooled.