Survey

[New Guy]

Hello All. I am new to this site and have a quick survey I wanted to conduct. It seems to be the consensus on this board that the market will drop dramatically. The question is by how much? It seems more and more people who are not homeowners are waiting for this drop and an increasing number of homeowners are “cashing out” and waiting for prices to drop before getting back in.

My question is: At what point would each person feel comfortable getting into the market and buying? Are people waiting for a 10% reduction? 20%? 35%?

More and more people I talk to are just waiting for the “right time.” I, for one, have been waiting for 3 years! In hindsight, it may have been a mistake to wait but I will try to remain patient.

I would compare a lot of us to track athletes at the blocks waiting for the gun to go off…some of us are bound to have a false start and jump in to the market at the first sign of a reduction.

I think a 20% reduction is the point that I would seriously consider jumping in. Psycologically, a 20% reduction of, say, $600,000 is a huge reduction down to $480,000.

Any comments/responses would be appreciated.

[lindismith]

yes, these are great questions. We have discussed this a lot on here. I will do a search and try to find the threads for you.

Here you go:

http://piggington.com/housing_prices_will_fall_at_least_50

http://piggington.com/rip_san_diego

[privatebanker]

New Guy,

Are you speaking about buying RE as an investment or a place to live? I would assume your speaking of a place to live. If not please comment. If you’re waiting to buy a place to live, clearly wait until you have at least 20% to put down on a property. But beyond that, it’s hard to accurately say how the market will drop. I know for certain that a major correction is coming, to the degree, no one can accurately predict that. The RE market has deviated far far from it’s average mean or average rate of return. Typically when an asset class makes such a strong deviation, it over corrects. Only time will tell here but it doesn’t look good. Just remember no asset class grows to the sky. I also think that in a few years and I’ve said this before, the popularity of real estate as an investment will certainly be of the unpopular variety.

[an]

Personally, I don’t like to put a % in my goal of when I’ll buy my home. I know that RE move much more slowly, it flat lined for 2 years before turning down. I would assume it would take 2 years of flat line at the bottom before it turn back up. So for me, I would be when y-o-y price start turning positive again. I rather be a little late and buy after it rise 5% rather than buy early and then find out it’s still falling.

[New Guy]

Good point asianautica. The problem is prices will probably take 5 or so years to bottom out.

[bob007]

I think surveys are stupid in the long run. Find out the average mortgage rate and the rise in median income. That is the biggest determinant of real estate in San Diego.

[JohnHokkanen]

I think some geo/price sectors will see a 15-20% reduction. I would be surprised if any geo/price segment suffers close to a 50% loss of value. I think other geo/price segments will adjust from -3 to +3 depending on a host of micro-market factors ranging from elementary schools to view to neighborhood. (For example, now that Carlsbad isn’t building another high school, this has put pressure for some to move to San Diguieto Union High School District. Or the widening of I-5 may make some streets in Cardiff which already have a quite a bit of road noise nearly unbearable.) The challenge is to identify which sector any given home is in and assess the purchase price against the risk & opportunity.

[DaCounselor]

I would advise you to not try and “time” the market. Regardless of what you read on this site or elsewhere, there is no one and I mean no one who knows precisely what is going to happen with San Diego real estate, how interest rates will move, how lending practices may evolve, etc etc. The true rules of purchasing real estate have not changed. Purchase when you are ready for the committment and can afford the payments without exotic financing, and then start enjoying your home.

[waiting hawk]

My question is: At what point would each person feel comfortable getting into the market and buying? Are people waiting for a 10% reduction? 20%? 35%?

35%. If I had to sell my property last month 30% below then 35% is not asking much.

My website tracking Temecula and South Riverside County

[rankandfile]

Take the current home priced and divide by 2…and start from there. Although this may seem ludicrous to some, if you think about the gross over-appreciation in the past decade it’s not that bad of a concept. The price of homes here in SoCal basically tripled (or more) in 10 years. So, a home that was once $300K is now $900K. Take 50% of $900K and you are left with $450K as a starting point. Simple enough? 🙂

[JohnHokkanen]

I think your question pressupposes that a person can wait, and that ability varies pretty dramatically from person to person. Some people have idiosyncratic needs, e.g., one particular elementary school. Within that district, they may have particular needs for floorplan, etc., which narrow the field even further. While the family might prefer to wait for a 20% reduction, their needs may drive them to buy now even understanding that the value may fall because there is a cost to not buying (i.e., not having the right floor plan or not having the kid go to that elementary school). This is especially true if they plan to stay in the home for 10 years.

If you’re looking at some market segments, I wouldn’t buy right now at any price reduction. For example, I wouldn’t buy a $1.4M home in Escondido even if it were 25% below market value because I think we might see a big correction there this fall and that there might be some incredible value opportunities. In other market segments, I think a 10% reduction would be a great win and worth the purchase right now. The distribution of the crash is not going to be felt evenly; some markets are going to “pay” more than others, and, if that is true, then it’s important to know the risk of the impact. I think if you look at a market segment’s Months of Inventory, you will get a decent idea as to how healthy that particular market is. Analyze them be geo/price segment and don’t lump them together because you’ll muddy the results that won’t give you the kind of crisp information that you need to make decisions.

I don’t track Temecula, but I suspect that it is similar to Escondido.

JH

[powayseller]

I am waiting until the bottom, whenever that is, regardless of whether it’s 30% or 50% off from today.

Do not use the median to find the bottom, bec. it lags by 2 years, as we are now seeing. While the low end prices softenend in 2004, the median is just this month negative yoy.

Find the bottom by looking for an uptick in prices. A realtor with his feet on the street can tell you when this is happening. Data to check: months of inventory starts decreasing, HAI changes to increased affordability. As soon as months inventory reverses, buy. We are looking for a reversal of a trend. At that time, the median will still be going down, and all your friends will say you’re crazy to buy. Banks will want 20% down, and the REO departments will probably be very busy.

So we need to use the data, but NOT the median, and keep in touch with a good realtor to know when the downturn SHIFTS and reverses. At first sign of reversal, you will get the best price. By the time the median is up, you will be paying 10-20% more than the bottom. This is my own opinion and analysis.

For your survey, put me down for a 50% nominal drop over the next 5-7 years.

[rankandfile]

I agree with Powayseller on the 50% drop, but I am a bit more bearish and think it will occur within 3-5 years.

[sdduuuude]

I think waiting for a single number is not wise.

You really want to wait until the conditions are such that the indicators of the future of the housing market show potential growth.

In an earlier post, I made a distinction between one who can tell you the state of the market (a reporter) and one who can tell you the future performance of the market (an analyst). Don’t make the mistake of the reporter and base your decision on simple numbers that only show the current state of the market. Don’t just look at median price and guess the trend while sipping a beer. Look deeper into the numbers, the financial markets, the lending markets, inventory levels, where are the buyers coming from, yada yada.

In other words, evaluate your decision month by month, or every 6 months. You may think 20% now, but if it hits 20% with no hope of an uptick …. well, you know.

Buying at the bottom is difficult and isn’t necessarily optimal. I would prefer to buy after the bottom has passed. The appreciation rate at the bottom is 0, and takes some time to pick up speed. If you miss the bottom by a year, you really aren’t missing that much in terms of appreciation. Plus, waiting until after the bottom helps you really see that the market has turned so you don’t jump the gun. Patience, patience, patience. So hard. So important.

Keep in mind, some on this forum expect a “Dead Cat Bounce” where the market kicks up after a short down cycle, tricking many into thinking the market has passed.

The RE market moves sooooooooooooooooo slowly. It could be 7 years until buying a home in SD gives you appreciation opportunities.

[BikeRider]

The housing market is really crazy now, due to the crazy people that made it that way. The questions are, 1. are you buying to invest or 2. are you buying to have a place to call your own. To invest, then now would be a crazy time, so maybe you jump right in with the other crazy people. Really though, not a good time to invest. As for a place to live, you buy whenever you are ready really. Of course, if you are one of those nuts (I call them nuts) that will be wanting to tap equity soon in the form of a HEL, now may not be a good time, since the home price will most likely drop. It is almost impossible to time the right percentage of value drop. I would buy when I felt the cost of the home, using a conventional loan, was well within my budget. And I felt I was getting something worth the money. It sounds like on the West coast, you don’t really get much bang for your bucks right now. I’m on the East coast and eight years ago we bought a 2800 square foot ranch style (walk out basement) on five acres for $155K. I consider that acceptable bang for the buck. Of course, we aren’t paying that premium for the weather. It’s a bit hot and muggy around here right now. But, hey, you get used to where you live. I can deal with a couple months of humidity. Variety is the spice of life. The heat and humidity hasn’t stopped me from riding my road bicycle any.

[Author]

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