If you look at a calendar and don’t look out through your windows, you’ll see it is June. The gloomy weather coincides with what we’ve been seeing in the real estate market. The summer months are the Christmas season for real estate. Landscaping comes to its potential. Daylight hours give clients more flexibility to look and show houses (looking at a house in January when it is 33 degrees, raining and dark really isn’t fun). Anybody that says “buy or sell now” had better put that in context. Reiterating what I’ve said before: it is a great time for SOME people to buy and sell now.”
What I think:
- The bottom of the slide is out there somewhere. It could be today, it could be years off. We’ll all be able to see where the bottom was because we can only see it through historical data. Everyone wants to buy at the bottom and sell at the top but that is not how markets work. Case-Shiller reports put Portland’s current values at 2006 levels. We didn’t hear too many sellers complaining back then. If you bought before 2004 and haven’t sucked the equity out of your property, you’re probably going to do okay when you sell. Not as good as you might have but still not bad. If you are looking to buy, you’ll appreciate the above and that you don’t know the bottom until it happened. Everyone has more than one “perfect” house. What is on the market today may not be in the future but there will probably be an equivalent home on the market then. Distressed sellers may not have a choice whether to put their home on the market or not (there was a TV story this week that foreclosure rates are the highest ever). Would I sell now one of our houses now? It depends. I think we could sell either our Belmont or Hawthorne rental and be happy with the result. I’m not sure that I would want to list the house that we live in now as we’ve only been here two years. Sapphire Development bought a house last week and while not officially back on the market, everything is for sale. We’ll need four to six months to get it ready for sale.
- I think Barak Obama will be the next President. I’m not currently qualified to write how the change from a Republican president to a Democrat president affects markets. We’ll work on flushing that answer out.
- Thirty year mortgage rates hovering around 6% is still historically great. Lending requirements have stiffened and that has shrunk the buyer pool. You can still buy a house with zero down but you’ve got to understand the risks of doing that in a declining or static market. It’s having the knowledge available to determine what you should do in your situation, not listening to someone tell you to “buy now” or “you’d be a fool to buy now.”
- I am not a fan of the Oregon Realtor Association’s Realtor Vision Campaign. I posted about it here at the beginning of the week.
- Skinny houses have a place in real estate. Not my style personally but I’m not helping you buy or sell a house for me. More valuable than my opinion would be those that live in, build and design them.
These are my opinions and even if you don’t agree, I hope you can respect them. Can anybody source or take credit for the picture? It was sent to me via email.
I’d love to read your comments on Ron Ares’ site regarding Mr. Yun and his predictions for Portland.
Seeing those mobile homes reminded me of the mobile home that sold for $1.5 million in Malibu a few years ago…location, location, location…ocean view and just a few minutes walk to the beach.
I think the conventional concerns about not being able to time the bottom are overblown. The conventional argument seems to be that you can’t time the bottom perfectly, so you shouldn’t worry about it and just buy now. Following this line of reasoning, there’s no need to buy car insurance either, since you never know when accidents are going to happen.
It is true that the bottom is only completely knowable after the fact, just like the top of the market is only completely knowable after the fact. But even if the level of uncertainty is the same, it doesn’t mean that the risk is the same. Risk involves uncertainty AND consequence, and as a buyer, the consequence of timing the bottom wrong is much less severe than timing the top wrong. Buying a little after the bottom has passed by is relatively benign compared to mistakenly buying a little after the top.
What does a buyer lose by waiting for the bottom to pass him by and buying when prices begin to rise modestly? As you point out yourself, a few thousand bucks on the purchase price will be small potatoes by the time it comes to sell. Maybe you’ll pay rent instead of a mortgage for a year or two longer, but the first few years of mortgage payments are almost entirely interest anyway, so those mortgage payments are just like throwing money away anyway. Interest rates might rise, but that would prolong the arrival of the bottom, so that would work itself out naturally.
Good points Leo. Following this line of reasoning, there’s no need to buy car insurance either, since you never know when accidents are going to happen. Couldn’t one argue that is the exact reason to buy insurance?
Regarding Yun’s speech at the OAR event. I wasn’t there. I think it only fair that the conversation stays on Ron’s blog.
Any reason you can’t respond on Ron’s blog? He summarized the speech. Many interesting points to comment on. Ron has some good posts once in a while, why doesn’t anyone ever comment except for the regular few? The only comments I see from realtors are things like, “great blog, blah, blah” Do you guys have exclusive blogs you all chat on to discuss market conditions, opinions, observations, etc because I don’t see much on RE blogs, unfortunately. You guys live RE day in and day out…lots of experiences to share…lots to learn for the rest of us…
Well, if history is any guide, the party in power has a distinct effect on real estate and society in general. We saw a similar bubble in the early 80s under Reagan with condo fever and real estate craziness all over the place. By the late 80s you couldn’t give a condo away and we were nursing a nasty greed-hangover.
I think we had a similar thing with the Bush years, only worse. His “ownership” society schtick and the whole elitist wealth worship thing seemed to be more infectious than it was under Reagan, the last “Lives of the Rich & Famous” President of the US. During this last RE orgy, everyone just HAD to have that fabulous McMansion (or the Portland equivalent, the “close-in stunning remodel”) and hey, here’s some fake money to get it. Oh, and don’t forget to buy lots of luxury items with that bubble equity! Who could imagine living without that Hummer or 2000 sf kitchen complete with pergranteel, a Viking stove and Caphalon pot rack? I shudder to think of life without them. Some days I wake up crying for my lack of “the good life”. But I digress. Sarcastically.
What makes this go around more insidious is the shameless attitude of the biggest offenders. “So what if we scammed our way into this house and all the stuff in it? It’s what one does in America, get over it. And while you’re at it, bail my ass out so I can keep up with the Joneses a little longer. SUCKERS.”
And about timing the bottom: the dire warnings from the RE industry to people who are on the sidelines must have been issued in a memo as a strategy to juice this moribund market. The problem with equating RE to stocks (which is what they are attempting to do) is that when a stock goes down and is perceived to have hit a low it could very well rise again quickly due to some business development, i.e., increased market share, acquisition, new product development, etc. When housing bottoms out it stays there until something, say run away inflation or a bubble caused by speculation, causes it to increase again. It’s not like the house is going to invent the next iPod and become a stellar performing investment. It’s even less likely that we’ll see another bubble in our lifetimes either.
We’re nowhere near the bottom and when it hits there will be plenty of time to buy. Of course you won’t know when that bottom occurs but you’ll have an idea it has arrived when much of the gains since 2002 or 03 are erased.
What I DO shudder about is what is going to happen after the election. Republicans are holding both feet against the door to keep the recession (or worse) wolves at bay but come the change to a democrat they’ll do everything they can to undermine and destroy this economy. That’s what they do best.
Any ideas on how the Dems are gonna destroy the economy or what’s left of it?
They couldn’t do any worse than the republicans have done. The best thing for them to do would be to reverse every economic policy of the last 28 years starting with reinstituting a steeply progressive tax system. But it won’t be easy to undo the results of years of conservatism’s neglect.
Then again, the American people are getting pretty much what they voted for and what they deserve for their ignorance. I watched for years while people voted republican thinking they’d end up with a tax rate of zero and then they could go out and buy all those doodads they saw at the mall. After all, 90% of the taxes the people pay goes to lazy people on welfare, right? I’ve seen that attitude for most of my life.
That’s why it’ll be fun to watch the middle class go begging to a government they demanded be dismantled and rendered ineffective. See them reach the ugly realization that what they voted for was their own misery.
Reagan dropped the tax rate and tax revenues went up. Look it up.
Where did the skinny house comment come from? Is there some issue or debate on them?
I know someone who fought the city to put in his skinny house. After it was done he won some design awards and now the city works with him by selling his plan as an approved plan. Ironic.
ahh, the Reagan years, such lovely times for the farmers of the Midwest. I still remember the flatbeds coming to pick up the farm implements and suicides throughout the region:O(
Wasn’t Reagan the one who started dipping into the Social Security surplus? Had to pay for his Star Wars/Cold War some how…
Billy,
Clinton RAISED taxes and revenue went up. Bush dropped taxes and revenues went up. But they went up more when Clinton raised taxes and, in contrast either the Reagan or Bush tax cuts, Clinton balanced the budget while the debt grew enormously under both of the republican tax cutters. Perhaps it was all the borrowing our republicans did. We went from being the world’s biggest creditor to biggest debtor nation under Reagan.
Revenue goes up as the economy grows no matter if you cut or raise taxes. The magnitude of the increase or the effects on the deficit and debt is a better measure of the economic effects.
But using your logic I believe I’ll go ask my boss for a 20% pay cut to increase my savings account. Better yet, I’ll vote for our leaders to drop taxes to zero because then we’d have plenty of money to run the country
Here’s a national debt graph that illustrates this point to the slow republicans reading this:
http://zfacts.com/p/318.html
Yes, there was a comment in a previous post about skinny houses. It probably deserves its own post so stay tuned.
Bearlee: Posting on other Realtor blogs… Hmmm. Something makes me feel we should be independent and let readers draw their own conclusions. Imagine the ruckus if Ron and I agreed! 🙂 Those damn colluding cool-aid drinking Realtors. Imagine the ruckus if we disagreed! 🙂 If I posted something contrary on BuyPDXrealEstateNOW would I find myself in an ethics viloation mess because the authoring (fictional) Realtor writing it says I am interfering with his marketing? It could be a slippery slope.
“would I find myself in an ethics viloation mess”
You would be brought up before the Realtor (TM) board of ethics and severely castigated.
If you drink it you should at least know how to spell it: Kool Aid.
Now is the time to look at the market. As Warren Buffet said, “Be greedy when others are fearful.” The Housing Bubble is not bursting everywhere. They certainly aren’t in Alabama Arizona, Southern California, Florida or Nevada. Pockets of growth are thriving in places that really don’t make the headlines too often. They are worth considering if you are relocating, investing or looking for a retirement haven or second home
You don’t have to “time the market” perfectly in order to make money. If that were true, very few people would make money– too few to make a market! The real trick is to make sure most of your bets make at least a little money, and to try to avoid bets that cause a “blowup.” By that logic, it’s more important to know when to get out of the market than when to get in.
OTOH, there are “unknown unknowns” that can cause blowup no matter how good your foresight, aka the Black Swan event. Luck is a factor, for sure.
Jenny, sounds like you primarily work with first time home buyers. Are your buyers feeling any impact from FHA woes…
http://www.nytimes.com/2008/06/10/business/10housing.html
WASHINGTON — The Federal Housing Administration expects to lose $4.6 billion because of unexpectedly high default rates on home loans, officials said Monday.
Brian D. Montgomery, the F.H.A. commissioner, attributed the unanticipated losses primarily to the agency’s seller-financed down payment mortgage program, which has suffered from high delinquency and foreclosure rates in recent years….
Housing officials said the agency was also hurt by poor performance in its traditional mortgage portfolio. Deteriorating economic conditions led some of its core clients — first-time buyers, minorities and lower-income owners — to default, they said….
But Mr. Montgomery warned that the F.H.A. would have to renew its efforts to end the seller-financed down payment program, which accounted for 35 percent of its loans in 2007.
He said the mortgages had foreclosure rates three times those of traditional loans and would push the F.H.A. to the brink of insolvency…
Are you seeing standards increased for FHA loans, ie, better credit scores, higher down payment, etc.
Thanks in advance for your response, bearlee
I like FHA loans. I used to see them back in 2000/2001. Then as 80/20 loans appeared and gained popularity, there was no advantage to FHA. But in today’s market where 80/20 are gone (or pretty much), FHA is back. I don’t ever recommend the programs where the sellers pay the down payment. Buyers have more ownership in their home when they pay their 3% out of pocket. And most buyers can come up with the down payment, although we might need the sellers to pay the closing costs. You do have to be careful as FHA has tighter requirements for the condition of the house and the appraisal. They want to make sure that the house is not falling down and FHA appraisers are often concerned with dry rot, paint chipping, holes in flooring, etc. Historically, FHA loans were easier for people with lower credit scores. I don’t have any personal experience with this right now but all lenders are tightening up. Credit scores have to be higher and the bank is asking more questions. They want explanations and are auditing a higher percentage of files. Wells Fargo just told us that they pull the tax returns on 10% of their stated income loans. I don’t know what it was before but I bet that this is a huge increase. I hope that FHA figures it out and is able to stay in business as I think that their loan programs are good for a lot of the first time (even second time) home buyers.
We’ve recently been pre-qualified, and the FHA loan is a better deal for us because of the extra percentage fees that are being tacked on to conventional loans if you dont have a FICO close to 800.