I went to a barbeque in 2002 and was talking real estate with someone who had been renting nearby for about 15 years. He planned to buy a home but wanted to wait until prices dropped because they surely couldn't go any higher. We talked about renting vs. buying and the equity building and write off advantages of owning real estate. We discussed that paying rent pays off the landlord's mortgage. We discussed the risk of owning stock vs. real estate and that you can't live in your stock like you can in real estate or write off your taxes and mortgage interest. He said he would think about it and call me when the bottom dropped out of the real estate market as, in his opinion, it surely would.
A year later in 2003 we met again at the same annual barbeque and we talked about it again. What had happened in the ensuing time was that prices continued to go up and the property he could have bought "last year" was now out of his price range. With the interest rates a bit higher, the mortgage payment for the house he had been qualified to purchase the year before was now qualifying him to purchase a townhome with an inside laundry, maybe a garage. He said "I should have bought last year" and decided to wait until prices come back down as, in his opinion, they surely would.
Another year passed and in 2004 we met again at the barbeque. His income had not gone up enough to allow him to save for the higher down payment he would need based on the higher prices and he would now qualify for a condo with community laundry and with someone living above or below him. He was lamenting that when he retired he'd surely have to move out of state and rent or maybe buy somewhere else. BUT his grandkids were here... quite a dilemma. He said "I should have bought last year" and decided to wait until the bottom dropped out of the real estate market as, in his opinion, it surely would.
Well in 2005 we didn't talk much about it at the annual barbeque. He was disgusted about this crazy real estate market and would just never be able to afford something. He said. "Well I guess I should have bought when we talked about this a few years ago. I would be in good shape right now as I want to retire one of these days."
The last quarter of 2005 marked the beginning of the end of the boom market we had been in for a nice ride in appreciation and at the 2006 barbeque he said, "See I told you the prices would go down, but I want to wait until it really bottoms out".
When we saw him this year at the 2007 annual barbeque, he said "Well I'm still going to wait until we really hit bottom, because prices will surely keep dropping as I knew it would crash at some point." The truth is, he will probably NEVER buy real estate. He has analysis paralysis.
For many of us who believe in real estate as an investment, we can ride these real estate cycles. We choose when to sell. The point is we are on the real estate investment train and that helps us keep up in value and equity relative to the market we are in at the time. There is certainly nothing to gain or lose if you are not in the market, but riding the cycles is preferable for some of us. If we are not at the bottom of the bottom or top of the top, we still do fine as real estate just continues to cycle. We can wait until the time is right. In the meantime we get to live in our investment. Or we can rent our real estate and earn equity while our tenants pay off our mortgages. We write off some of the interest and taxes paid, and usually gain appreciation before we sell. If prices are down when we sell, they are down for us to buy then too... it's all relative, but the key is that our real estate keeps us in the market and we can take our equity and move when we choose. Your rent just goes to someone else's mortgage and equity. YOU HAVE TO PAY TO LIVE SOMEWHERE, WHY NOT HAVE THE RENT YOU WOULD PAY GO TOWARD A MORTGAGE AND EARN EQUITY FOR YOU?
The point our acquaintance missed was that had he purchased when he first started talking about it, he not only would have had a lot of equity (even today at the bottom of the market he'd have been ahead), at whatever point along the way (if he had chosen wisely when to sell) he would have had enough to retire comfortably and probably pay cash for a home if he moved out of state as he had planned. If he had bought in his area in 2001 or 2002, he'd have made about a 30 percent increase during those years, in some areas more. So, this bottom we are reaching has dropped prices in his city about 10-15%. And, he'd have had the 15% to 20% to take to his next home. This is far more than he could save in a year and still a profit over his original purchase price.
Here we are today, maybe at the bottom or we can see the bottom from here, and where are the people who would like the lower mortgage payment and low interest rates? I guess they are waiting and next year will probably wish they had bought "last year". I and many others like me have been investing NOW in real estate as we believe we are about at the bottom of the cycle.
The time to buy is now when everyone else is not buying. The good deals are now with an extraordinarily high number of homes on the market, signs in every neighborhood and foreclosures abounding. We are picking up the "deals" and talk to our clients on a daily basis about the market opportunities. I predict, THIS is last year.
Next year is an election year and if you look at the history of the real estate market in election years, it is pretty good. Generally interest rates go down and the market is given a shot in the arm. In California, our economy is typically the last to go into a slow down and the first to come out. So when I say, "This is last year", I mean "THIS IS LAST YEAR".
If you want to make a great buy in a home or investment real estate they are around every corner. Call your Realtor, find a good Realtor who is full-time actively working in this market as those are the people who know where the deals are (not a part timer who isn't out there day after day or a friend with a license who works only when the market up).
With the current scares in the mortgage industry about the defaulting loans, take your Realtor's advice on a reputable mortgage broker. 40+ lending institutions have been taken over or gone under since January of 2007. This too makes it a good time to buy as people who are afraid will not enter the market now and get the "good" loans that are still available as they are too afraid because of all the bad press. This gives you the opportunity as the prices will stay competitive for you to purchase before the market makes a rebound the other direction. It's time to get on the train as "this is last year".
This is a market update on the Realtor.org website for July, 2007:
A Buyers' Market to Behold
Buyers now have an overwhelming advantage given the wide selection of homes available in many markets, according to NAR's latest forecast. "But with profit margins coming under pressure, homebuilders will limit new construction well into 2008. This should help the overall inventory level to move steadily into a more balanced state," said NAR's Senior Forecast Economist Lawrence Yun. Existing-home sales are expected to total 6.11 million this year and 6.37 million in 2008, down from 6.48 million last year. Prices are likely to rise 1.8 percent next year after a 1.4 percent drop this year.
- Terrylynn Fisher, Realtor in Walnut Creek California for 30 years. www.StagersLIST.com
Diablo Realty 1800 DIABLO2 or 1800 342 2562
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Contributor's Note
This was originally published on my Active Rain Blog at www.ActiveRain.com/terrylynn
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