17 Comments on “Be Glad You’re Here”

1. Unfortunately we’re probably going to see the same things happen here. Not all bubbles burst at the same time and not all economic corrections occur simultaneously in all markets. I think Portland has more like 20,000 inventory. Don’t forget too that Phoenix has double the rate of in-migration as we do.

2. What great concessions, but I’ve got a novel idea for them to move those houses…MAYBE THEY SHOULD LOWER THE PRICE!

   I agree that Portland is just a little further behind on the same curve so watch out this spring.

3. What great concessions, but I’ve got a novel idea for them to move those houses…MAYBE THEY SHOULD LOWER THE PRICE!

   I agree that Portland is just a little further behind on the same curve so watch out this spring.

4. So why is lowering the price NOT an option? What is the psychology behind offering the car, gift cards, etc. As a potential buyer none of that appeals to me but a lower price sure does? Who is recommending these silly options, the realtor, the seller? Is the idea behind it all related to keeping sale prices high? Higher commissions? Keeping the comps high to try to prevent or slow down the inevitable price slide? I do not get it. I could see if you are upside down in your loan the hesitation but if you really need to sell lower the dang price and not by a skimpy 5K!

   Just some thoughts, bearlee

5. The run up in inventory and decrease in sales in PDX looks quite similar to Phoenix 12 months ago.

6. bearlee-

   I know a guy who bought a home because his wife wanted the flat-screen television. The home was offered with a new flat-screen television, and it really didn’t matter that it cost more, as he was keeping his wife happy today.

   These offers appeal to those who don’t otherwise have the means to obtain the assets. Note how high their discount rate is. Consumers in this category are willing to make large sacrifices in the future so they can consume today.

   With the sub-prime lending situation, these buyers are having harder times obtaining assets, so the new car sweetener might add value to the home. Effectively the new car is being added to the loan.

   Think in terms of motivation. What does the potential target market desire, and how can I leverage my knowledge about my market.

   By the way, for most people I suggest hiring a paid professional (real estate agent) to craft the right strategy. Someone with a background in marketing probably could craft a very effective offer.

   Ultimately, however, lowering the price will sell the property. The question is whether or not a person is better to raise the price and include a new car. Which way does the seller end up with the greatest amount of cash?

7. Much of the question comes down to the seller’s net and the buyer’s perception of value. Two identical homes (we’re assuming they are priced to sell and there is a willing and able buyer): one is $297,000. The other is $299,900 and includes the appliances that the other does not. The appliances cost the seller $2,900. Both sellers are going to net the same amount on a sale.

   What is the value to the buyer? Buy the house with appliances, you effecitvely finance the cost of those appliances over the life of the loan (and pay interest). That might be more attractive than buying the same $2,900 of appliances on a credit card. It might not.

   I’m not sure that a car would get past an appraisal as an item of no stated value though.

   Have you seen any out-of-the-norm offers from sellers in our market?

8. So if you buy the house w/ the car or flat screen you are essentially financing a $10K car at about 7% for 30 years or a $2.9K at about 7% for 30 years both of which are depreciating faster than you can spell Yaris and both of which you will likely not be able to use in the resell of the house in a few years? (and your home is likely depreciating, also)

   So it is mainly psychological and not an economical decision. Just like the auto dealers trying to convince folks they need an Expedition to get those two kids to soccer practice. I still remember the ads for the Hummer w/ a well dressed Mom getting groceries…I think marketing is often used to get people to buy things they do not really need.

   As for the Portland market I am seeing a lot of cash back incentives and upgrades, Home Depot gift cards. A developer in Bend was giving away(?!?) a Smart car with the homes.

   BV homes was offering no payments for 6 months and it did not effect the principle though I do not know the details to how that worked out for the total interest on mortgage.

   Mostly I am seeing realtors that mislead about desirable locations, schools, hot market, continued appreciation, instant equity, going fast, HOT neighborhood, it s a steal!, close in (at SE 122nd?)…

   Maybe they just have not realized what the market is really like. They are still living in 2005?

   I am sure there are some great realtors out there but I think everyone and their dog jumped on the wagon when the market was hot and homes where essentially selling themselves so it is difficult weeding through the desperate and inexperienced ones.

   bearlee

9. bearlee-

   One should consider the whole picture when trying to make finance decisions.

   I have some 2.9% student loan debt, and I have plenty of cash to pay it off. Should I pay it off? By the way, even if the cash were sitting in the bank earning 0%, would your decision change? What is the value of being in a liquid position? Do I reduce my total risk by holding the low-rate debt?

   As far as the car in the mortgage–should I pay the mortgage off faster if the deal included a car? I would suggest that initial purchase should be considered separate from the cost of the money. In other words, if you can get cheap money, don’t prepay. If the money cost is too much, then pay it off sooner, rather than later.

   One last comment: What is a “cash sale?” While most people agree that 100% cash is a cash sale, if a person finances 10%, and thus pays 90% with cash, is that close enough? I know a guy who (only) financed $35k on a $300k place. I personally consider that a cash sale. I suspect he finance the $35k for a better rate on existing debt, but I didn’t ask him about the specifics, and does it really matter?

10. I guess my concern is that the home prices are dropping, so what if you include a cheap car or a TV, it distracts people from the fact that they are making a huge purchase.

    I understand the cheap money concept.

    My question to all you folks is would you recommending purchasing a home right now when you see all the news and indicators pointing to depreciation over the next 2 if not more years?

    Yaris or Plasma TV, who cares, why buy now?

    Sure, selection is great and the money is cheap but would you buy knowing your home may lose 10-30% over the next few years?

    Can anyone give me a good reason to buy now?

    bearlee

11. bearlee-

    There are a couple of investment strategies that will pay off:

    1. Buy high and sell higher.
    2. Buy low and sell high.

    Essentially to make a profit you must sell at a price that is higher than the purchase price.

    If you know, somehow, that prices are going down, then it is time to sell. If, on the other hand, you know, somehow, that prices are going up, it’s time to buy.

    By the way, I have had it both ways. The other day I purchased a stock and a few days later the quarterly results were announced. The stock went up about 30% in a single day. I sold 50% of my holdings to reduce exposure to this one stock.

    Suggested Reading on this topic: “A random walk down wall street” by Burton Malkiel.

12. Let me be more straight forward… is there an honest realtor out there who would recommend that I buy a home in Portland given the current indicators. You all seem to be looking out for your sellers, what about the buyers? Would you buy a home now at the current asking prices?

    I am not talking Wall Street. I am talking home ownership.

    bearlee

13. I’ve said before that everyone has their own reason to buy at any given time in any market. Some reasons I can think to buy:
    1) you see real estate as a long term investment. You know that if you buy now and the market remains close to where it is now, you will have made some gains on taxes and be that much further ahead in paying down your mortgage.
    2) you need to get out of your current living situation.
    3) you are afraid that interest rates won’t remain at close to historic lows and that a raise in rates might cancel the savings of a lower sales price in the form of payments.
    4) you don’t believe the media 🙂
    5) your accountant says you need the write-offs.
    6) you believe that you and your Realtor can negotiate a “good deal” in this market.
    7) you realize that NO ONE has a crystal ball to the market. JP points out that one factor can swing the price of a stock either way overnight. The real estate market moves slower but reacts to the news.
    8) you have talked to the professionals that you trust and they support your decision to buy.
    9) you understand that their is RISK in any investment at any time.

    I think that is an honest assessment of why you might buy now.

    Number 1 reason not to buy now: it is not right for you.

    Charles

14. bearlee-

    Many people buy homes when the value is going down. This depends on the reasoning to buy.

    I have a friend who purchased a home with an ocean view in California. The purchase price was over $1M. He suggested the home would probably go down in value by about $200,000 in the next two years (over 10% but less than 20%). That reduction in value was his own estimate.

    Did it stop him? NO! Did he buy to “make money?” NO! One might ask about why he decided to buy. In one sentence he said, “Every morning I wake up to an ocean view, and every night I see the sun set over the ocean.” In other words, he is happy to view the ocean, even if the property is going down in value by ~$250 per day.

    The book I suggested applies to all investment, not just Wall Street investment. Please don’t judge a book by its title.

    I guess we could also have a discussion about why people get married. For some it is simply a matter of investment strategy, but there are others who have a different philosophy.

    In any event, there are pleny of REALTORS that could recommend purchasing a home today. Do you really know that the market will decline? If so, let’s start an investment company, and we will short real estate.

    I might suggest that you ask yourself why you might want to buy a home. I can, with near certainty, say that there is at least one rental deal that will beat all your purchase options, but do you really want to live in those conditions? Are you willing to accept the ups and downs of taking an ownership position?

15. 3) you are afraid that interest rates won’t remain at close to historic lows and that a raise in rates might cancel the savings of a lower sales price in the form of payments.

    If you think rates are going up, you also would think that prices would go down. Generally speaking, when rates are high, prices are lower. You can always refi to a lower rate later, but you can’t refi to a lower price later.

    4) you don’t believe the media 🙂

    …but apparently you did when the market was rocketing upward and the media reported on how prices were appreciating.

    5) your accountant says you need the write-offs.

    Fire your accountant and get another one. Even if you’re in the high tax bracket, you’re getting something like 35% back for every dollar lost to interst. If you like that deal, then just pay me $2000 per month and I’ll give you back $700. Just think, you’ll be getting $700 back!

    6) you believe that you and your Realtor can negotiate a “good deal” in this market.

    But what if you can negotiate an even better deal in a year?

    7) you realize that NO ONE has a crystal ball to the market. JP points out that one factor can swing the price of a stock either way overnight. The real estate market moves slower but reacts to the news.

    Perhaps, but people need to have the ability to borrow in order to buy (for the most part, that is, unless you can pay cash or put a huge amount down). The availability of credit is the limiting factor now and that availability is shrinking…
    We can see this happening right now in real time, check out Roubini’s latest article: “Liquidity and Credit Crunch in Financial Markets is Back to Summer Peaks, Only Much Worse and More Dangerous”

    There are certain things we can predict about the future like Winter follows Fall. We are now in the midst of a credit contraction which means we can predict that with less available credit, there will be less buyers. With less buyers and a high inventory what happens?

    8) you have talked to the professionals that you trust and they support your decision to buy.

    but what if that professional you trust is either not telling you the whole story, or doesn’t know the full extent of the whole story?

    9) you understand that their is RISK in any investment at any time.

    Indeed, but there time that are riskier than others.

    Bottom line: if you are willing to buy now, you must be prepared for the possiblility that you will be underwater for up to several years meaning that you aren’t planning to need to move for several years. If you’re in that position, then perhaps now is an OK time to buy… but how often do people buy a place thinking that they’ll be there for 20 years and then end up needing to sell in 2 years? Another scenario where it might make sense to buy now is if you recently sold another house at or above current prices – then you won’t really be out anything. This could be a case where someone is downsizing, for example – they’ve captured some gains at near the top of the market and now keep some of them by buying a smaller place.

16. Someone buying a place for over $1 million probably doesn’t have to worry about losing money. They say the high end market won’t feel much of an impact from a slowdown. They are the people with all the money and don’t stress over interest rates, recessions, etc.

17. PDXLover-

    You are right; he isn’t worried about the impact of a slowdown, but that was my point exacly. People have various situations and different motivations to buy or sell. Not everyone is looking to profit.

    He did borrow short-term to buy the ocean view property while he sold his other property, but again that was more about ease of making a deal work rather than reposition his entire financial situation to buy the property. When he listed the other property he priced it to sell, and he paid the loan off once the property sold.