September 24, 2006 at 12:28 PM #7586BradPittParticipant
Some people sold their house in 2004 or early 2005 because they heard of the bubble, and I don’t understand why. They could’ve gained 20 to 40% more appreciation and then sold their house even at 5 to 10% below market value for a quick sale.
Real estate is not like the stock market and does not plummet in a few months unless there is immediately massive job loss. Even if you sell it during a cooling market like right now, then you have taken advantage of all the appreciation and now face losing a few percent profit. Even though increase inventory is competing with you, sellers are still delusional and trying to sell their houses at above market value.
I don’t understand why Robert Campbell speaks of trying to sell before the peak, when you could easily sell it after the peak. Because who really knows what the peak is due to exuberance. But when it comes back down(very slowly) you can take advantage of seller denial(almost always there) and price it right.
For example, lets say RE prices are dropping 12% a year. Then you stand to lose 1% a month. So if you price it at 6% below market value, you are ahead of the drop and buyers who still want to own will appreciate your being reasonable and realistic. But the situation right now is no where near that tragic scenerio. We are still slightly appreciating in Southern CA. I like to think of real estate as stocks in really slow motion. There is a lot of forgiveness.
What do you guys think?
Ps. I’m talking about people who have bought houses several years ago and not people who have recently bought and are still trying to make a profit. If you’ve bought recently, then you would stand to lose a lot even if the market just levels out.September 26, 2006 at 6:19 AM #36451powaysellerParticipant
It’s a very valid comment.
The market slowed in spring 04, but I was told SFH prices peaked in summer 05. I sold in December 05, so I took a 5% cut from summer 05 prices. Not a single house in my neighborhood has sold since then. When exactly was the peak? Spring 04, the time to have sold your condo, or summer 05, the time to have sold your SFH (ripple effect of real estate takes about one year).
Today, we are 18 months past the peak. Selling now gives you a loss of 10 – 20%, but if you sold at the peak, you could have $50K – $100K more. If you own many properties, then it’s to your advantage even more, to time it right.
So you make more money if you sell while days on market is low and demand is still high. Campbell and others, like jg and I, would like to know when is the peak and trough so we can optimize our entry points.
If you miss the perfect entry point, that is okay as you pointed out, because real estate is a slow moving ship. You can take 1 – 2 quarters to make sure the cycle has turned, and still have a pretty good entry point. But even then, you’re still stuck with having to define what makes a good entry point: how do you know the cycle has turned? Will you wait 18 months until the main stream media covers it?September 26, 2006 at 6:22 AM #36452The-ShovelerParticipant
I think it also depends on the condition/location of the house, It is much easier to sell a dog when the market is still raising and inventories are low, Once there is a lot of inventory it’s becomes much harder to sell that dog even with a price reduction.September 26, 2006 at 7:06 AM #36453lendingbubblecontinuesParticipant
Selling during a frenzy of bidding wars is a heck of a lot easier than during a period of increasing illiquidity. If you were speaking of stocks, I would agree that it would be easier to get out just past the peak. Since housing is truly illiquid, in the sense that an individual purchaser must buy it from you, rather than a market-maker providing near instant liquidity, missing the peak can mean an agonizing, instant loss of 20-30% “value”.
What if nobody remains who likes your floorplan/view/location/neighborhood/paint/flooring/compass orientation? Then you are screwed. I firmly believe, although I have no data to support, that many people in this country went to bed one night, then woke up with their house being worth 30% less than the day before due to the lack of a current/future buyer. I categorically disagree that real estate has to be “sticky on the way down” as this is NAR-speak, plain and simply crap.
Finally, I disagree that we are TRULY “slightly appreciating in Southern CA”. Most of us smart enough to be participating on these boards recognize that medians are a useless indicator in the current market conditions, post peak…sentiment and anecdotal experience are much more telling of the reality. Prices are down significantly in many parts of the U.S. and they are down a good bit in some parts of Southern CA….most owners don’t realize it yet.September 26, 2006 at 8:33 AM #36463JESParticipant
This is facinating and I’m wondering if it is possible to actually predict some of these things with some degree of certaintly, unlike the stock market which is nearly perfectly efficient. New information and tracking past performance with stocks really doesn’t help (Modern Portfolio Theory) since everyone is doing the same thing and information absorbtion is nearly instantaneous. Even active portfolio managers have a worse track record than the S&P500 index.
It’s always been clear to me that housing presents opportunities to uncover hidden gems and underpriced properties, but do you think this advantage extends to analyzing past trends to predict the future? You gain information in doing so with stocks, but that does not give you an advantage because the market is too efficient. Since housing is very local, and far from a perfectly efficient market, it would seem that strong past analysis can in fact provide you with a huge advantage.
JGs great charts got me thinking about this the other day!September 26, 2006 at 8:44 AM #36465FutureSDguyParticipant
The NAR will both predict and point out anything that has to do with “higher prices.” Yesterday there was a thread where they say that the market “has bottomed.” I Resent Realtors(R) with a capital R, and I am disappointed that such a mass of uneducated buyers and sellers are complicit to their propaganda and price fixing by putting in a system that prevents the free market from operating.
Even people here who have a lot of economic insight drink the Realtor(R) kool-aid.
Having said that, the market *is* sticky on the way down. Cookie cutter houses with small lots are still way overpriced, and I’m not seeing anyone “make a move” by offering properties at prices what buyers can afford.September 26, 2006 at 9:11 AM #36473technovelistParticipant
Obviously it is best to sell at the peak, as you will make the most money that way.
Of course, this is best in the stock market or commodities market too.September 26, 2006 at 9:49 AM #36470ChrispyParticipant
I got out in April 2004. My house sold in three weeks at full listing price, and I don’t care if I could have made 20% or so more “appreciation” by waiting two years. Balance that against the tens of thousands of dollars I have saved in the last two years by renting instead of owning – factoring in not just the mortgage, but the homeowner’s insurance, taxes, cost of the sale, improvements, etc.
I was also able to take a large portion of the gain and reinvest it elsewhere, which increased the gain’s value over two years. On a purely financial level, I made more by selling early than waiting.
There is something to be said, too, for peace of mind. I have never been happier than in the last two years, because I didn’t have the albatross of an unsold house and wondering if “now was the time to sell?” or “should I have sold last month?” or “should I sell in two months?” Selling is stressful – especially in a declining market!
Quality of life and being happy is more important to me than “perfect” timing.September 26, 2006 at 10:33 AM #36486bubParticipant
Could've, should've, would've.
I closed escrow on my pos condo 5 days before the 2004 Presidential election (I wanted out before the election).
I bought end of 97. Perfect timing? Hell no! Pure luck.
I never for a moment regretted not selling at a later date because for 1 simple fact.
Real Estate is an Illiquid Asset.
The 45 day escrow period I endured is not something I want to repeat anytime soon.
Oh yeah, Brad your last movie sucked.September 26, 2006 at 11:57 AM #36493poorgradstudentParticipant
If anyone here can perfectly predict peaks, they ought to be really, really rich right now. There are a lot of really smart people on these boards, but there is no clear consensus on when the bottom will hit on the RE market. There is ALWAYS uncertainty in the future. You can rationally make good predictions, but perfectly timing peaks is a lot like getting a hole in one… possible, but really hard to do consistently.
“unlike the stock market which is nearly perfectly efficient.”
This has not been my impression. The stock market is quite efficient, but there still is a lot of irrationality. One only has to look back to the tech bubble to see that. “Hot” stocks can be overbought, sending the price skyrocketing with no real earnings/growth basis. Companies routinely are under or overpriced. Individuals will continue to make moves on “hunches” or “a hot tip” of purely anecdotal evidence.September 26, 2006 at 1:03 PM #36502sdrealtorParticipant
Contrary to what some seem to believe, it’s impossible to accurately identify peaks until they have passed.You make the real money in RE when you buy not when you sell. Buy smart and you will do well. Buy poorly and you won’t.September 26, 2006 at 1:23 PM #36505rseiserParticipant
“The stock market is perfectly efficient in giving us a real-time representation of all the irrational minds.”
R. Seiser, Nobel laureate (in spe), 2030.
Haha, so the efficiency of the market is actually quite useless.September 26, 2006 at 5:20 PM #36530(former)FormerSanDieganParticipant
Buy your personal residence when it’s affordable to you and never sell.September 26, 2006 at 8:30 PM #36549sdrealtorParticipant
Damn good advice!October 6, 2006 at 9:07 AM #37384VCJIMParticipant
I sold in early 2005 and have often wondered if I should have waited for the Summer, the peak buying season. I was not under any financial pressure to sell.
My house had a nice lot, but was a horrible layout with bad construction, no a/c, bad electrical, etc. In the 10 years I lived there, I made almost zero upgrades other than a nice storage shed I built unpermitted. My realtor and I discussed frequently that I could invest in fixing up the house to make more money. Her arguments were convincing that the return on investment would not be there; someone buying this house would have their own plan for it. The offer I received covered seller’s commissions, no contingencies and “as-is”. The fact that I would not have to worry about fixing anything was a huge incentive for me. Anyway, I accepted the offer and escrow went smoothly, other than my uncertainties about selling.
The buyer instantly added a second bathroom and landscaping, it was back on the market in 3-4 months. It never sold again; I don’t know if the flipper is living in it or renting it out.
Since then, I’ve watched the market and have wondered if I should have held it a little longer. I’ve come to the conclusion that it was the right choice, given the condition of the house, my personal situation at the time, the ease of selling, etc. I would not want to be trying to sell that house now, or even 6 months ago.
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