How Long to Hit Bottom?

[zk]

I whole-heartedly disagree that timing the bottom is easy. I think it’s a lot more complicated than when those 4 items reach a certain point. If you only look at those factors, there are bound to be at least a few false starts – times when those numbers start to turn around only to fall back again. I guess we’ll see.

[powayseller]

zk, I’m happy to elaborate. I got my data from Cash in on the Coming Real Estate Crash, by David J. Decker and George G. Sheldon. Mr. Decker is a professional RE investor, and founder of Decker Properties. He’s been in the biz for 20 years, through several ups and downs. I found this downturn easy to time. Very easy. I might have missed the top by a few months, but I only lost 5% of my selling price by selling in January 2006 rather than at the peak in August 2005. If I had been tracking the leading indicators, my timing would have been better, I’m sure. (Or at least, according to Decker.)

According to Decker, the most important index in a recovery is the Housing Affordability Index (Chapter 4 of the book), a government published measure of the ability of the median income to afford a median priced home. Scores below 100 show increasing difficulty with buying a home. You can google this, and get local results. NAR publishes regional HAIs quarterly.

“The first signs of recovery in residential single-family homes will occur in the leading indicators, days on the market, months of supply, and mortgage applications….Before prices begin to recover, homes will be selling more quickly, the months of supply will begin to decline, and mortgage applications will increase…Understand that you do not need to wait until inventories have declined to the 5.5-6.5 months supply of a vibrant market before starting to invest. In fact, those getting in at the beginning of the recovery will do the best. Just know which direction the indicators are headed and invest before they return to normal levels.

The key to profiting from a crash is to buy just befoer the recovery becomes widely obvious. Remember that real estate markets can remain in the doldrums for decades…Some real estate owners will be able to sustain periods of negative cash flow or unemployment by relying on their reserves. Therfore, it takes more time before sellers become truly desperate.

While all of this is occurring, you may be tempted to buy. After all, you may be seeing prices not experienced n a decade. However, lower prices alone should not be the sole impetus in a buying decision. Look at the data and indicators outlined in this book. Make an educated guess at whether the market has hit bottom. It is important not to buy too soon. By waiting, you may be able to take advantage of increasingly desperate sellers. For the investor with limited staying power, having the ptience to wait until recovery is certain is a must or you may pay a high price for any mistakes you make in timing the recovery.”

Here’s another post about the topic: a brief history of the last bust.

[powayseller]

Speaking as a homeowner and a renter, I can honestly say that life as a renter is more peaceful and enjoyable.

I’m actually happier now, without the worries of constant repairs and my insatiable desire to keep decorating and fixing up. In the rental, I don’t really care about replacing the mini blinds, spending 6 months’ salary on a kitchen remodel, replacing the sprinkler system, or spending an entire weeks’ pay at Restoration Hardware on gazillion-count sheets to match my organic cotton pure white duvet cover. After all, it’s only a rental. The neighbor kids all love me, and are constantly over at the house playing with my kids. I’ve got great neighbors.

My husband has so much leisure time, since he’s not constantly embarking on an improvement or fix-up project. He has more time to golf, play soccer, take the dog for a walk, go running, do electrical robot projects with the kids, read books…This leaves him more relaxed, and a lot more time for he and me to spend just being in the bedroom rather than remodeling it. (I hope adult humor is allowed here.) Believe me, homeownership is really overrated. I think the real estate industry has effectively brainwashed people into thinking it’s more meaningful than it really is. They lobbied Congress to enact mortgage tax deductions, and people figure if Congress thinks it’s good, it must be….

Although we will buy again, because eventually we want a home that’s paid off, I am enjoying my life as a renter. Immensely!

So I suggest that you think of what you’re yearning for, what you think that owning a home will provide, and perhaps you can fill that need some other way. Love to build? Check out Habitat for Humanity? Want to connect with neighbors? Go ahead.

I hope I gave some people a different perspective.

[zk]

“I found this downturn easy to time. Very easy.”

Well, I wouldn’t be counting my chickens just yet. I agree that prices will probably go down substantially. But I haven’t declared myself victorious in my timing quite yet.

And even if you did time it perfectly, being right once doesn’t mean that you’ll be right again. It’s a very complex situation that I don’t think can be boiled down to 4 factors. Again, we’ll see.

For every David J. Decker and George G. Sheldon there are a couple economists (ones not in, on the periphery of, or connected in any way to the real estate profession, and therefore theoretically unbiased) who don’t see a coming crash in real estate. So I have trouble looking at their theories and completely buying into them without any skepticism. I wish I had your freedom from doubt, but I don’t.

[powayseller]

zk, what is your perspective on the market and where it’s heading? Do you work in a business affiliated with the RE market?

When I go to the UCLA Anderson Forecast Economic Meeting this morning, I’ll ask about how to time getting back in, if I get a chance, to hear another perspective.

[zk]

My situation is exactly the same as yours, PS. We sold our house last year. We’re renting, and we’re planning on buying when we think the time is right. (That wasn’t the plan when we sold, but once we were out of the market, we didn’t think getting back in at today’s prices would be a good move.) As I’ve said a few times here, I think prices will drop substantially in the next few years, and our only difference on that issue is our level of certainty. I’m actually somewhat apprehensive about it.

I am in no way connected with the RE industry. In fact, they generally disgust me with their misleading of people about the market and their maneuvering to keep their stranglehold on their commission system (primarily the fact that most realtors won’t show a property unless at least a 2.5% commission is offered. To me that is at the very least extremely unethical). So if I appear in any way to be taking their side, it’s not because I’m on their side, it’s because I try as hard as I can to see both sides of any issue. Even if the other side of this issue scares the heck out of me (prices keep going up while I’m renting).

Any news/info you can bring back from the meeting this morning would be greatly appreciated by us all, I’m sure. Looking forward to that.

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