Many in real estate are reluctant to call the bottom. A few quick clicks up in any recent statistics with any positive news... seems the be held up as a sign that things have turned around and things will soon be OK. However the news and statistics these days are like a tug-of-war! Each new news story pulls our minds in different directions. The problem is... that within a day some other news will come out that will dash or contradict that original news story. Now do you know why there is reluctance to buy?
So here are my thoughts... We are in the bottoming stage right now. The market is approaching bottom and will reach it no later than the first quarter of next year. The reason is that mortgage rates are at their absolute lowest, and will start to rise dramatically off their lows after the first quarter. So yes, home price will decline further, but the bottom is in the cost to carry the property. The monthly costs right now are so low that it is cheaper to own a home than to rent! The time to buy is right now! Some people will look for home prices as their gauge, I do not. I look at the cost to carry the home. Would you rather own a 200K home with a 4.5% 30 year fixed mortgage or 180K home with a 15% mortgage? I'd take the 200K at 4.5%! Do the math!
****A 70K mortgage at 15.5% PITI will be over 1500 a month! Been there, done that!
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Jim - Great point ! We just had a buyer back out of a great deal due to his fear. We told him that he will probably not see those mortgage rates next year and it might be a big mistake for him. Even if prices drop a little bit more but if rates go up next year the increase in rates are a much bigger difference in terms of the cost to carry the home.
Jim - This is a solid message to fence sitters debating "when" to move on a property
Jim, I guess if we have to ask if the market has bottomed out, it hasn't!
What can I do today to make someone Else's world easier?
Paul
Jim - Good points. The reason we're having such a struggle identifying the bottom is that we're looking at traditional indicators; and this recession is anything but traditional.
Jim Crawford ~ Atlanta Real Estate-ABR E-PRO, Atlanta, GA
Hello Jim,
I have to agree with you, some areas will continue to slip and slide others will get a boost in sales. On an individual basis my clients are doing what is best for them and real estate is always a good investment. Sellers, that have the abiltiy are hunkering down and waiting. Other sellers, that have to move for one reason or another are not reaping the winfalls that they came to expect. Columbus Ga is an extremely fortunate area, we are guaranteed to grow because of military base realignment. I think congress is going to extend the first time home buyers tax credit.
Columbus Ga Homes, Fort Benning Realtor, Phenix City Real Estate
Jim, Well spoken, it's rare to see all of the buy signals that are present in this real estate market.
I'm having a continuing argument with one of my seller/buyer's right now about this subject. He needs to resign himself to the reality that he will take a significant loss on the sale of his current home, BUT, on the "buy" side, he will make out like a bandit - low prices & very low "current" interest rates.
We are not at the bottom, another 15 to 20% here. Doesn't mean you should buy a home as long as it is long term, seven years or more.
The $8K tax credit is over Dec 1. Banks are artificially holding down the supply of homes (shadow inventory) and the fed has kept rates artificially low by buying over a trillion dollars worth of mortgage backed securities which they plan to stop. All while foreclosures and unemployment keeps increasing. Can you imagine what your 15% interest rate scenario would do to these foreclosure numbers or to our economy and jobs? Do the math??? If interest rates go to 15%, I don't see people who are slow to pay $1014 each month on a 200K house suddenly ponying up $2275 each month on that same house at $180K. The truth is, that if your scenario is right, housing has MUCH MUCH further to fall then 10%. Only one way now makes great sense and that is with massive inflation... Oh, and treasury yields are flattening from fear of deflation. I don't agree that this is a no brainier...do the math??
Christopher and Stephanie Somers - Realtors - Philadelphia Real Estate (Owner - RE/MAX Affiliates) I have been reading that we have a reprieve with the mortgage rates until the spring and then...watch out.
Claude Cross Charlotte NC Real Estate (HomesByCross,Inc.) The time is now.
Paul Henderson, Realtor ® Lacey & DuPont Washington homes (RE/MAX Professionals & Four Seasons Inc.) Paul I really have to agree with you...but now it's in sight. Almost! LOL!
John Mulkey, Housing Guru (TheHousingGuru.com) Agreed!
Klaus Nicholson Realtor Columbus Ga Homes Fort Benning Homes (RE/MAX CHAMPIONS REALTY Columbus Ga-Fort Benning-Phenix City) That is great news. I also believe that real estate as bad as it may seem is a lot safer than investing in stocks. At the end of the day, at least you have the roof over your head. I also believe there will be a major correction in stocks shortly.
Jim,
Looks like the media stories about the bottom are roughly evenly split between yes and no camps. That's good actually, at least it isn't any more all nos.
Chain Real Estate Investment & Mortgage I agree. However, I believe the signs are all there. The market is very dysfunctional right now because of all the new agents that came into the market and have no reference points to advise their clients. They cannot identify what is happening.
Tom Boos (Sine & Monaghan GMAC Real Estate) I try to explain to sellers it is all about defining the goal. Once the goal is defined...then it is about getting from point "A" to point "B!"
Charles Stallions Real Estate 800-309-3414 Pensacola, Fl. I think you nailed it. Buyers are thinking like it's 2006. Buyers need to think strategically - long term, and as a shelter.
Charles -I guess you missed the memo! Bernake commented about a week ago that we will see substanial rate increases in rates despite unemployment being at over 10%.
Esko Kiuru - Las Vegas NV Mortgage Consultant (FHA, VA, Conventional, Refinance, Jumbo) Most people will not time the bottom.
Bernanke is a liar. http://tinyurl.com/y9sy6w3 and is only talking his book. He says he will drain liquidity to give the dollar strength for as long as possible...but words are all he has. We'll see if that memo was worth reading...
As for those that jump in now due to the low carrying cost. Be extra careful. Negative equity matters if you need to move for a new job etc.
Charles There are those too that will make some very good investments when everyone else is frozen in place with fear.
The Canadian real estate market is looking very positive right now. I hope the US follows suit.
Miranda
Miranda Moser Realtor® Century 21 Bamber Realty Ltd. (Century 21) I may have to move there! My parents are from Newfoundland! All my relatives are still in Canada! :)
Jim - I can't believe this wasn't featured. Carrying costs not the price of the house are ultimately what determines whether a buyer can afford a home. It is such a fundamental concept, yet so misunderstood. BTW, in Louisville the bottom is behind us. Buyers can still get great deals because of interest rates and the fact that home values haven't really started to climb. But the worst is over here. (At least until the alt-a resets)
Erik Hitzelberger, --Louisville-Bullitt County Real Estate (RE/MAX Alliance - Louisville REALTOR-Luxury Homes) Thanks! I am happy to hear that you market is doing well. I do not think the word is out here yet!
Check my most recent post. This market is still sliding, but it is a great time to buy!
Hello Jim, I'll give you an A+ for Real Estate Math -- the trend line most reports don't give us is the affordability trend-line. At the grass-roots, today's current renters that want to own a home will be measuring that Affordability in their individual and collective way. We are seeing the "early adopters" in that crowd making purchases today, when the "crowd" get's their courage up we'll be seeing them tomorrow in decent numbers. Thanks! John
Jim: It is a good time for the fence sitting buyers to jump on over and buy while the inventory is plentiful and interest rates are still very good.
I disagree with you about hitting the bottom. We have not seen all of the adjustable mortgages adjust up. There was a 3 years arm program out there last year until October. Unless these people are able to refinance ~ what will happen when they adjust up and what if they are unable to refinance? Just something else for you to think about.
Realtors haven't hit bottom yet as sales/sales prices continue to decline while commissions (like everything else) are under pressure to decline. Sounds reasonable residential prices will bottom out by mid next year although commercial will be a year behind assuming no major events like a war. I think there will eventually be inflation, so the depreciation concern Charles voiced won't transpire. Rents have come down so in general it is still cheaper to rent than buy, especially if you have a concern about job stability. Once we bottom house prices may go sideways a few years before rising.
I tell my Buyers: You should have bought two months ago, but you're still OK shopping now. Our market has had a major shift in the past 60 days. I am with you on this prediction. At least for Myrtle Beach, the best time to buy was two months ago. Now is the second best time to buy...
Jim: This is now featured on the Optimist Group.
Alexander-Slocum REMAX Team - Vancouver WA Real Estate (RE/MAX equity group, inc. - Vancouver Washington) Baron de Rothschild once voiced the opinion; 'When there's blood on the streets, buy....'. No one is going to get an invitation that says..."Now is the time to buy, we have arrived at the bottom!"
Sandy Childs - Spartnaburg, SC Realtor® (Keller Williams Realty) I still beleive we are at a bottom in affordability. Will the time to buy when prices are low and rates are high? Would it be better to wait until prices firm and start to rise?
Phil - I agree this will be a sideways issue for a few years.
Mirela Monte, Your Myrtle Beach Real Estate Connection Barring anymore unforeseen major events we could be in a very safe zone to buy for the long term with rates this low! Thanks for the feature!
Jim: I can agree with you that now is a great time to buy. I agree with you that rates will rise. I don't agree with you that we have hit the bottom, because we are going to continue to see short sales and foreclosures for about the next 2 to 3 years. Builders cannot get loans to build new inventory which helps the resale market ~ although it does not help the builder.
I'm interested to hear your thoughts.
Jim, Now is a great time in our area to buy a home. I think we still have a ways to go before we see things really turn.
Sandy Childs - Spartnaburg, SC Realtor® (Keller Williams Realty) The bottom may be in monthly payments. Most persons do not believe that higher interests rates will kick in, at some point they have to. The government has spent too much borrowed money. We sell bonds to others around the world. They must be paid back with interest! Rates will start rising in my opinion when the Fed backs off buying mortgages. My guess? Early second quarter next year rates will start rising.
Jean Terry (Keller Williams Realty Spartanburg, S.C.) I agree. Also, not everything will bottom at the same time. I believe condos will not bottom before 2011.
Jim: I totally agree with you that interet rates will rise ~ there is not way around that. I agree with you that the feds are looking for money. We had 2 more banks to fail this week.
What I am talking about is that foreclosures are going to continue to rise. Builders are going to lose what little inventory that they have on the ground, many are unable to sell their inventory because it is encumbered with judgments and mechanics liens. Also, many more people will lose their homes when their rates adjust up and they are no longer able to pay their payments. This could take another 3 years. I still dont' see how we have hit the bottom as long as the foreclosure rate could continue to rise. Still interested in you thoughts.
Sandy Childs - Spartnaburg, SC Realtor® (Keller Williams Realty) You may have the wrong perception of bottom, or perhaps looking for a capitulation or a turning point. I do not think you will see one given point this time. We can hit a bottom with lower prices, and 15% mortgages, and commercial, and condos will lag the market and not bottom for years. However...affordability...this is the real bottom. There are tax credits right now that further sweeten the pot. I know what the repercussions are in this market, I have lived through many recessions. This one is much bigger than anything I've witnessed in my life. But please take a look at mortgage rate charts. I know neighbors of mine that paid 18 and 19% 30 year fixed rate mortgages. They are crushing.
If you want a bottom of the barrell point...this market is not going to correct itself for many years to come. It is that bad.
Jim: You remind me of a broker I had a few years ago. We would go at it about points of the law or different points of view about the real estate market. You really remind me of him. I would love to sit down for coffee with you and talk real estate. There are some of us ~ who truly love this business and love to taklk about it. I still don't think we have hit the rock bottom ~ i
Anyway, I hit the wrong key. I was saying that I don't think that we have hit the rock bottom yet. I think that the market is searching for the bottom ~ we are very close and there are some fantastic deals out there ~ but it's gonna get worse before it gets better. I have really enjoyed this thread.
Sandy Childs - Spartnaburg, SC Realtor® (Keller Williams Realty) It may literally take years to hit a bottom in this market. This will not be a "V" shaped recovery.
Jim: It won't be a V or a bell it is more like \/\/\/\/. We start up to recover and something comes along and knocks up back down until finally the economy will recover. Thanks for your insight.