I agree with you that, in general, prices are not likely to drop to 1998 levels – people looking for a place to live in (assuming that there are loans available and they qualify) are going to buy at a higher price than investors will – the unknown for me in the rent vs buy equation is where rents are headed – I expect nominal rents to decline so I couldn’t make a purchase today based on current rents
In a sensible market (let’s equate ‘sensible’ with 2001 prices for this discussion), an investor makes their money by being more knowledgeable than his competition – being able to spot a property that has upside potential or has been mis-priced becomes key – this knowledge is how the smart shopper will find the 1998 values even if prices are at 2001 levels – also, the investor has to spot these properties quickly and move on them before other buyers do (of the properties I purchased, I was usually the first offer on the first day of the new listing and my offers were full price or better)
As you point out, it is important to become familiar with the areas of town that you are interested in – that is how you will learn to recognize a good property when it comes along – having this knowledge will save you time when you are looking at MLS listings – in my areas of interest for rental property, for example, I know which streets are narrow and have cars lining both sides (which gives the whole block a very cramped feeling and indicates that parking is an issue) – when I see a listing on one of those streets I don’t have to waste my time driving by it and I don’t get all excited thinking, “this is the one!”, only to be disappointed by reality – at one point I even made a list of specific street addresses that I was interested in if they ever became available (engineers are weird!) – knowledge you might want to have for your area of interest: where are the parks / schools / bus stops, traffic / noise issues, future development or re-development plans, etc
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Is the lower end of the market coming to a buy point? That is one tough question to answer – there are so many variables involved and lots of unknowns – because of the unknowns risk is high – as an investor buying rental property I can sit on the fence when risk is high and not try to differentiate market segments – someone who needs to put a roof over their family’s head has a different perspective on making a purchase decision
If I were drinking a beer with the potential low-end house buyer and they asked me about buying a house in 2008 I would probably encourage them to rent unless they found their own personal Shangri-la at a price that was well within their means
