Friday, June 20th, 2008 at 10:09 PM
When to Buy
Jim,
Here’s a question. I am renter & have never owned. My husband and I have saved ~$225k for a downpayment and have good jobs. We rent an apt in Carmel Valley and want to buy in Carlsbad or Encinitas. We’re thinking a SFR $500-600k range with a yard on the east side of the I-5.
Personally, I think it is still a horrible time to buy, but my husband is desperate to own a house. He wants to buy right away and it has been a point of contention in our relationship for a while now.
In your expert opinion, (if I relent and agree to buy a house soon) do you think that it would be wiser to buy the house we want to raise a family in? Or (if I relent and agree to buy a house soon) should we buy a smaller, crappier house than we want and temporarily live in it, then rent it out as soon as another house comes along that we want to raise a family in at a better 2010 price?
Answer:
Congratulations on saving a healthy down payment, that’s a great start.
When to buy? Now, or 2010, or both?
I’d recommend that you only buy a house that could last you forever.
In the event that 2010 arrives with lower prices, and you can find a satisfactory replacement, then oh-happy-day, you hit the jackpot. But you don’t want to find yourself having to move – at any point – for the rest of your life.
It’s too difficult to find a great house at a great price – you don’t want to find yourself in a position where you had to move at some specific point.
This strategy could have a few benefits:
1. You won’t feel under the gun to buy just any old house now.
2. It’ll probably take some time and energy to find a suitable house now, and as time passes you should reap the benefit of further price declines.
3. You wouldn’t feel under the gun to buy just any old house in 2010.
For most people, this package sounds safe and comfortable, and it is. But don’t think that being able to saunter out and casually look for a house will cause it to happen. Unless you are lucky and/or have a great realtor, it is a long, arduous process to search through different areas, view the specific houses for sale, and be willing and able to act in a timely fashion if a good offering comes up.
Chances are that if you come across a good buy, you won’t be the only one interested in it. That’s where having a great realtor can pay off – by getting you in front of the pack and securing the deal, ahead of the competition.
I’d suggest that you keep looking, you never know when you might find the right house. If you found one that satisfied your wants and needs, go for it. It could happen this week, it might take you until 2010 to find it – but keep looking!
Buy when you find the right house, at the right price.
Posted on Friday, June 20th, 2008 at 10:09 PM in Thinking of Buying? | 27 Comments » | 
Print
You can follow any responses to this entry through the RSS 2.0 feed.
You can leave a response, or trackback from your own site.
Thanks for the good blog. I am in the buying mode as well but will wait until end of this year or early next year to pull the trigger unless there is one that is really a "good deal". Right now we are in the so-called "spring bounce" so definitely more buyers out there to compete against. Hopefully inventory will swell by end of summer along with sub-prime loans imploding will put the "buyers" in better position.
dejams | June 20th, 2008 at 11:48 pmNot bad advice. If you time horizon is long enough and you find a place you love with resonable sellers, buying now is reasonable.
However, I believe the deals we’re going to see in 2010 are going to be clearly better.
greenlander | June 21st, 2008 at 2:10 amThanks for the nice blog and comments about the questions. Many of the potential buyers know what is the right house for them, but how to know what is the right price? The current market value minus 10% or 20%?
jfw | June 21st, 2008 at 2:13 amThe poster of this question is not alone. I think there are a lot of qualified buyers just waiting (and stalking this blog!) The patient ones will be rewarded.
I’ve been bearish on this market for a while now, but lately I think it’s going to be even worse than I thought. I was thinking 2009, and now I’m hoping 2010. This last year in the housing market was nothing if you look ahead at our economy, rates, and excess inventory.
The Blur | June 21st, 2008 at 2:21 amIf you’re just talking about buying *a* house, I’d say it’s a terrible time to buy. But if you have a firm idea in your mind what house you’d consider *the* house, that house of your dreams that comes along once in a blue moon that you’d buy even if it was going to go down in resale because you love it so much that once you’re in it they’re going to blast you out with dynamite and carry what’s left of you out in a box (Jim has picked one of my top candidates for such a house for this blog entry), then if you find that house and can afford it without ridiculous "creative financing," that’s another story.
GeneK | June 21st, 2008 at 2:24 amVERY well Said Gene K.
Is that the Frank Lloyd Wright house in PA?
The Blur | June 21st, 2008 at 2:44 amyes, Fallingwater in Mill Run, PA
Click here for more photos:
Link to Photos
Jim the Realtor | June 21st, 2008 at 3:06 amJim its funny you should pick that house for your photo. My parents patterned the house in Valley Center on just that same house.
Barnaby33 | June 21st, 2008 at 3:16 amI grew up near Falling Water. Tiny bedrooms, water running under your house freezing in the winter. Unfortunately, I think the cantilevering design has had some serious reengineering to keep it together.
This picture jogged my thoughts to what the av. $/sqft is in the nicer areas of PGH. A 10 sec search appears to be about $100/sqft. Do you think it is going to end up being twice as expensive to live here when this is over?
Post Vietnam era that is probably about right. But high paying jobs are not in abundance here like they were.
In my job, I meet seniors all day who moved here for a job and an inexpensive house. They shake their heads at families today spending so much of their income on a house but are happy to take it for the house they bought for 10K post WWII. I wanted to find the average gross income in this time for the ratio but couldn’t quickly find it.
Pseudo | June 21st, 2008 at 4:03 amIt’s surprisingly hard to find a house you really resonate with. Or wait — it is if you have realistically limited funds.
My suggestion to the person who first posted this question would be to regularly go to open houses for a while. It will give you a feeling for what’s out there, so when you do find the right place (likely not through an open house), you can jump on it without either hesitating or having regrets that you could have looked more.
Dwip | June 21st, 2008 at 4:45 amFalling Water cost $155,000 all told about the cost of permits these days. Having just visited the Gheary designed museum in Seattle I’d take a Wright structure any day.
Rob Dawg | June 21st, 2008 at 5:48 am"It’s surprisingly hard to find a house you really resonate with."
I’ll say. We moved into our house here last August. At the time I renamed the online search I had been using "buyer’s regret house," out of a certain perverse curiosity to see how long it would take for another house to come along that might make us wish we had waited. Ten months later, the "buyer’s regret" search has yet to return any result other than "there are no listings that meet your criteria."
GeneK | June 21st, 2008 at 6:20 am“Buy when you find the right house, at the right price.” Spoken like a true party member of the Realtor club. I think the question was saying that they can think of two “right” sized houses that would be two different prices (right prices, or not).
me (waiting to buy) in OC | June 21st, 2008 at 10:11 amI am glad to hear the caution in your words, rather than the old “It’s a great time to buy” line. Jim, I think you know it’s NOT a great time to buy. It’s a really lousy time to buy. Just look at a graph of prices of sold homes. Prices are diving. Don’t look at the 70% of the listed houses whose prices are too high, and that won’t get offers, or sell. The houses that are selling are in the lower 30% of the listed prices. This selling season is the first season without exotic loans available. They vanished last September. Regardless of mortgage rates, it’s harder to qualify for a loan this year. We will soon be coming up to the middle of this “first” season. Later this summer, some sellers (and banks with repos) will get more nervous. A limited number of sellers will lower their price. Those will be the homes that sell, and the graph of sale-prices will continue to dive. Next year’s selling season will be the second season without exotic/easy-qualify loans. Yada-yada-yada. You get it (or you don’t get it, and you’ll buy a house). Better to buy when you see prices start to rise, than buy and watch your house price drop 5 to 10 thousand dollars each month! And do use a Realtor for whatever the fair negotiated fee happens to be at the time. Realtors have always performed a real service.
Spoken like a true party member of the Realtor club.
I’ve never heard a realtor say that before. I just looked through the ‘club’ handbook, and I didn’t see it in there either.
Jim the Realtor | June 21st, 2008 at 12:53 pmJim, the problem is that some people hear what they want to hear rather than what you are saying. I get that a lot too. There are always diamonds and there are always dogs. There are also always selling pressure and buying demand. what changes are the ratios and competition.
What I think you are saying is that if while you are walking to the diamond field we all suspect is only around a few more corners and you see a diamond in the road go ahead and pick it up.
Rob Dawg | June 21st, 2008 at 3:35 pm"I think the question was saying that they can think of two “right” sized houses that would be two different prices (right prices, or not)."
That’s not what I got from the OP. What I read is two possible *types* of house purchase, either "look for our last house" (her preference), or "buy something, anything, just to get a house now" (his prefererence).
I think that for her, a "good time to buy" will be when she finds that house that she’ll be happy to live in without dreaming about "trading up" (if they can afford it). For him the "good time to buy" will probably never come, because he’s "desperate to own a house," and desperate people almost never make good longterm decisions.
Your comment sounds like you’re a true party member of the "houses are just financial investments" club. Are you waiting to buy a house to live in, or just for a good time to jump in and start flipping?
GeneK | June 21st, 2008 at 4:58 pmI’d suggest asking people other than realtors for advice on when to buy a house. This isn’t to say Jim won’t give you a good answer. He seems a very reasonable person. However, I feel there is a conflict of interest when asking this question of any real estate agent. So, find smart people who understand the market, but who won’t benefit from your purchase.
Don’t ask your landlord – he’ll tell you not to buy. Don’t ask someone who is selling a house. They’ll tell you to buy now. You get the idea.
Look to objective and neutral housing analysts such as Rich Tosano at http://www.piggington.com. Look to data and analysys, not to sales people an anecdotal stories.
When you look at the graphs on this page – especiall the NOTs and NODs, you will realize there is no hope of housing reaching bottom any time soon: May Housing Rodeo
sdduuuude | June 21st, 2008 at 5:31 pmI’ve worked with four good realtors over the years, and the one thing they all had in common was that they all saw their jobs as realtors as helping people who wanted to buy get best house they could for what they wanted to spend and people who wanted to sell get the most money they could for their house, not convincing people it was "a good time" to buy or sell, I would regard any realtor who attempted to do that as a bad realtor for me.
GeneK | June 21st, 2008 at 6:49 pmhe’s "desperate to own a house,"
Inland Empire | June 21st, 2008 at 8:30 pmMy mother told me never go grocery shopping when you are hungry. It seem you always come home with junk you don’t really want. If she can persuaded her husband to wait until Q1 2010 there will be bargains even in the "nice area" for a house to live in. If he only want an investment then wait until the fall. Sale are slower then and less buyers to compete with. I’d would also start looking now for prices and location guidelines in my target area ..
My question to the potential buying couple would be: what’s the point of buying a crappy house to have for 2 years? Isn’t the point of having a house to come home and feel good about it? Make all the little changes to it that make it your own? Well, how likely i.e. would you be to bother laying the kind of flooring you love in a house you don’t actually like and just to plan to rent out anyway two years down the road? Two years go by fast, especially with kids in the house. Just keep renting.
The other part that doesn’t make sense is the whole buy now, rent out later equation. Prices in C-bad have not come down enough yet to break even. Also, if you pour your good down payment into the first, crappy house, then what are you going to use to buy the real thing?
Simone | June 21st, 2008 at 9:13 pm"…my husband is desperate to own a house…"
__________________________
Wow, talk about a seller’s dream…
In my opinion we are in a "don’t fire until you see the white of their eyes" situation. I don’t see any evidence that contradicts the theory that values are going to continue to drop, particularly in the property type at issue in the question. I would advise against buying just to buy right now.
Regarding "the" home, the "dream" home, everyone’s criteria is different. Unless you have unbelievably demanding, strict and unusual requirements, there are alot of really fantastic properties in the area. Knowing your requirements and knowing the overall level of availability is critical to the decision making process in this regard. Why pay $800K for that "dream" home now when may be able to get an equally "dreamy" home in a few years for $600K??
RSS | June 21st, 2008 at 9:35 pmWhy shouldn’t you buy just to buy right now? Just go back a few posts to "Acceptance" and look at our friend Jason. If you buy a house you don’t really like, you’re going to want a new one. Then you’ll REALLY be stuck if the market goes down in a couple years.
My wife and I were in a very similar situation as this couple. We were renting downtown, with a healthy down payment ready to go (over 20% for our price range.) She wanted to buy soon, I didn’t. We’d look at houses and be impressed by everything we saw, probably because they all offered so much more space than our 1300 sqft condo.
A few months ago we rented a house in Carmel Valley. After living here a few months, we’ve learned some about what we like and don’t like about a house. Most importantly, though the house is pretty nice (2800 sqft, built 2003,) we now both agree that we’d never pay close to asking price on this house or any house in CV (for all kinds of reasons.) They’re simply not worth that much hard-earned money to us.
Now we’re on the same page. Neither one of us wants to overpay for an ordinary house. We’re waiting to buy a house we really love, and can comfortably afford. Leading economic indicators lead me to believe the housing market will cooperate.
The Blur | June 22nd, 2008 at 1:53 amDon’t buy a house, ever. No need to love a piece of property or the idea of home ownership. Possessions are fleeting. Take that money- invest it wisely, and love the long term security.
CVman | June 22nd, 2008 at 6:43 amHaving bought and sold into several cycles (booms and busts; mostly due to corporate relos), almost going bankrupt on an "investment" home once, losing money several times, mostly getting a little ahead and sometimes even making a killing, I may have a little experience to share. So here’s my 2 cents worth…
We have bought many homes that were going to be "the last one." We don’t own any of those now. Our lives/needs/desires had changed. Or living in that place wasn’t how we imagined it.
So my first thought is that it might be difficult to imagine now everything you might want/need in your perfect home. I learned more about what I wanted with each home.
Second, if you don’t have a corporate relo guarantee for your home purchase, only buy a home you can imagine living in for 10 years–maybe not forever, but a long while. This includes not only the features of the house, but the likelihood of your careers not changing. your family staying constant, etc.
Why 10? Almost all cycles seem to run in 7-10 year periods–you should be able to get out with your shirts intact on most anything after 10 years, if not with some profit, when the "new right thing" comes along.
Third, why is your husband so desperate to buy now? Perhaps there are other solutions. Maybe he wants to do more with your savings. Maybe he feels cramped in an apartment. Maybe he just feels that’s what he’s supposed to do as a grown-up. Someone mentioned above that renting a home (instead of an apartment) gives you more experience and usually more space. That could take some pressure off.
Fourth, get your husband to read some of the blogs with you:
Pigginton.com
http://calculatedrisk.blogspot.com/
http://bubbletracking.blogspot.com/
newyorkfed.org (click on the mortgage maps for CA)
as well as Jim’s local info
and others to get a feel for what is going in the SoCal real estate market and also the financial markets and their effect on real estate.
Last, a good deal of real estate is emotional. I find that when we start looking at homes, we start getting anxious to buy. It’s hard to shop and not buy. So you need a plan.
After arming yourself with information, sit down and make a wish list of your perfect "(we think) we will never move from this one" house. All the details! Where–what specific neighborhooods or blocks–how many rooms–describe the different types, special features, kind of yard, etc. (Ours take a full page or two.) Then work with a good realtor and find out if you can buy your perfect house now (or when the markets soften a bit more). IF you find it, you should seriously consider buying it. As RobDawg said, if it’s a diamond, you should pick it up.
See if you can rent in the area you want; I have learned a lot about an area after renting in it for a while–traffic/problem areas/local opinions/etc. always made me a smarter buyer after immersing ourselves in the area first.
If I were a first time buyer, knowing what I know now about RE, I think I would wait. Everything I’ve been reading for the last six months tells me that while the subprimes are out of the closets, they are not yet fully into the marketplace–many more are coming, as the banks play catch up with their paperwork. And just about the time we think we are finally gettng over that, then the a good deal of ALT-A/ARMs and other "better" mortgages are going to start collasping, and flooding their homes into the market. And indications are there may be even MORE of those. That’s going to be a lot of extra homes needing to be sold.
I would say wait till 2009 and see how it looks. I suspect waiting till 2010 or 2011 is going to get you a LOT more bang for your buck (and you’ll have saved more by then).
Good luck!
shoppingaround | June 22nd, 2008 at 7:38 amBTW, I don’t advocate that no one should buy now. As you can probably tell by my "pen-name", we are actively looking. But we are near retirement age and have been studying (and renting and owners in) the areas we’re looking at on and off for more than 15 years. We have a plan–we (think!) we know what we want this time. So when it comes up, we are not going to "Wait" if it seems like a good deal for now (our threshoold is 25% off the market top orbetter). but we won’t be crushed if the neighborhood falls further–we will have cherry picked and that’ll make all the difference for us.
Again, good luck!
shoppingaround | June 22nd, 2008 at 7:43 am"if you find the house you want to buy now" is the better realtors version of "It’s always a good time to buy." It may not be in the handbook, but I hear it, or a version of it, from EVERY realtor, so it must be somewhere. Maybe it’s in the secret area of the MLS?
My question back is, "so when is it a bad time to buy?"
Regardless, the real question for you is what’s the opportunity cost? "you can never lose money on real estate in the long run" is true on it’s face but totally misleading crap. It can be a VERY long run and VERY expensive. If you buy a house for 20%-50% less than you would have a year or two before and hold it ten years, that’s a hell of a lot of money you save every year in addition to actually being able to sell your house for more than you paid for it when ready… at your price range that can be several hundred-thousand dollars or more difference.
I know Jim gets this but you’d be surprised the number of realtors who can’t grasp this math and spout out some more (not handbook!) rhetoric along the lines of "more rich people made more of their wealth through property, blah, blah blah…"
You see the prices going down, what does your husband think is going to stop them? You have nothing but flexibility, use it.
150 multiple choice questions | June 22nd, 2008 at 5:39 pmThe buy and hold theory is chockfull of pitfalls, whether it’s for real estate, stocks, or whatever. The mantra for stocks is buy and hold for the long term and you will average 10% per year, yet the relatively conservative S&P500 is now below where it was in 1999. Maybe 9 years isn’t long enough for some, but losing money after 9 years compared to the ‘expected’ 100%+ return is bs.
mattK | June 23rd, 2008 at 3:45 pm