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Deep In A Buyer’s Market: Time To Buy A House

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A few years ago, it was a seller markets. In the Baltimore area, a home would list on Friday and a contract would be signed on a Monday. At the latest, it took until a Tuesday until it was finalized as buyers would compete with each other to get the house. List prices were the starting point, not the ending point, and if you really wanted a home you’d have to pay top dollar. The home I now own was listed at $270,000, I paid $295,000, and a competing buyer offered as much as $330,000 for the home*.

Today it’s totally different. I believe that right now, and for the next six months, you’re seeing the lowest point for sellers from a psychological perspective. Whether or not the housing market is factually at the bottom of the valley remains to be seen but I think we’re at the lowest possible point a seller can be and still keep their home on the market. If the market gets any worse, you’ll probably see any optional sellers, those that don’t have to make a move, pulling their homes off the market if they haven’t already. Homes that have languished on the market for months will probably slide a few renters in to tread some water and those foreclosures? Scooped up by opportunists or just left sitting on a bank’s balance sheet.

Why do I believe that we’re at the low? The stats don’t lie and there are only so many punches you can take. Home prices take the largest tumble in 25 years? Homeowners and builders offering all sorts of freebies like leases on cars and free appliances. I mean it’s so bad that the government is stepping in and thinking about freezing ARMs in order to stop the bleeding. Oh, and to pile on even more, it’s now winter which has historically been the slowest season for home sales.

If I were in the market, I’d probably turn to new constructions first because builders need to move inventory. They aren’t like regular sellers where they can opt to just live in the house a little while longer, they need to free up the capital they’ve invested so they move onto other opportunities. They are also more likely to offer up huge incentives for buyers because of this need to rid themselves of inventory. If new constructions are out of your league, I’m sure there is plenty of inventory in most of the US so pick your spots and you’re likely to find yourself a great deal.

What do you all think? Things will get worse? Much worse? Things will get better?

* The reason I got the house was because I was willing to rent it back to the seller for two months as they bought their new house. The competing buyer wasn’t willing to do that, so I lucked out big time.

{ 20 comments, please add your thoughts now! }

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20 Responses to “Deep In A Buyer’s Market: Time To Buy A House”

  1. MFJ says:

    I think you have some points about the sellers mentality – but as far as prices go I think they could certainly fall a lot lower than they have. My first google search didn’t turn up exactly what I was looking for but this should do.

    Find a graph that is over an even longer period of time and the insane run up of prices is even more evident and the drop in prices we are experiencing compared the runup barely even registers.

    No way trying to predict what may or may not happen just historically it looks like housing prices could decline a lot more than they have or remain flat for a very long time in the general market – of course each regional market may be different.

  2. Kirk says:

    We are just scratching the surface for two reasons. One, as previously mentioned by Money Blue Book, sellers haven’t dropped prices that much. This is normal. When the tech bubble burst, many held onto their stocks rather than sell because they bought the stocks for $100 per share and they anchored to that price. Instead of selling at $50 per share, they held. When the shares finally hit $25 a share they broke the anchor and sold. This is the same in housing. You hear about how a neighbor sold his house for $400K so the current seller won’t go below that. Eventually, they will come to the conclusion the home is only worth $300K and drop the price. It takes years, not months.

    Second, most housing corrections occur when a local economy is in recession (think Texas in the 80s and NY/Cali in the early 90s). The economics of the region drove the real estate values down. We haven’t had that yet. This slowdown is strictly a cyclical feature due to the over-expansion in real estate. If the nation falls into a recession, and many signs point that way, we will see a real depressing home market. That is when it is time to buy.

  3. Danny Tsang says:

    In general, we’re not at the bottom yet, but I will say that it heavily depends on the local market. I live in San Francisco, and here I believe we’ll stay flat for a long time. There’s no space here so prices won’t go down. However, I own property in central CA and those prices will continue to tumble as sellers(myself included) won’t or can’t sell at the low prices that builders are selling for. Central CA, along with areas of Phoenix and Florida, are some of the places that got pumped up due to a lot of speculation and bad loan choices. Prices will continue to fall since they were artificially generated to begin with. It’ll take some years for that to settle in. Then, in some markets that never seen the crazy increase in prices during the last 5 years, like areas of TX are actually now on the rise. I’ve been looking at buying TX property over the past year hoping to buy at the lowest, and I see the good properties actually INCREASE in price. Just my luck right? I think places like TX, TN and other areas will increase 5-10% over the next 2 years since they are a bargain compared to everywhere else. From an investor’s standpoint, those properties provide a high ROI compared to the rest of the country.

    In short, prices will come down in general, but don’t count on that rule. Take a look at your local real estate market and do your own analysis on whether or not the prices make sense.

  4. MonkeyMonk says:

    Home prices are so regional I’m beginning to think it’s futile to talk about them in a national sense.

    I live in a suburb of Chicago and prices for certain types of homes (I’m not included new, $million-plus, builder-constructed spec homes, since these have been having trouble selling) have held steady and even increased in value over the past 2 years. We have some of the best schools in IL where we live and there’s always going to be an influx of young families not wanting to stay in the city. As long as there’s a demand the prices shouldn’t be hurt too badly.

  5. Matt Wolfe says:

    I am in the market to purchase a house right now and I’m a first time home buyer. I’m wondering on a daily basis if we’ve hit a new low in the market and if we finally hit the bottom. The only problem for me is that I am located in San Diego. Even in the market right now a crappy condo conversion is still selling for $350,000. If this really is the bottom, I don’t know if I’ll ever afford a place in San Diego…

  6. Miller says:

    I agree with the comments above that you can just never tell beforehand. Recall the next few months are the peak of the subprime resets. We’d think that’d have *some* impact. But who really knows, right? Here’s the only think we can say for certain: it would be better to buy now than a year ago.

  7. Minimum Wage says:

    Homes that have languished on the market for months will probably slide a few renters in to tread some water and those foreclosures?

    Danger! Will Robinson!

    Check your zoning before trying this at home.

    I’ve seen places where it’s illegal to rent to more than two unrelated individuals. You can stick an unmarried couple or a family of eight in these homes, but you can’t slide in three unrelated.

  8. TTFK says:

    I paid $104,000 for my little 1179ft/sq abode in 2003.

    According to Zillow, it is now worth around $133,000.

    It is all moot, since I have no plans to move for the next 15-20 years anyways.

  9. Dave says:

    I am from Central NJ and prices on almost all homes have fallen about 10% over the past year-year and a half. What I see now is that people who are ready to retire (or are almost there) are willing to relocate early and take any equity gains (profits!!) with them which is resulting in a surplus of homes for sale. Some towns which were traditionally “expensive” to live in with good school systems have a ton of houses for sale because everyone’s trying to get out while the getting’s good. As a 28 year old condo owner, buying a single family home now is best for me, because I’m still at the “entry level” price wise, and the value of my condo hasn’t dipped all that much, but single family homes have dropped anywhere from $25-50k. I will be putting my condo on the market in January to try and capture some of the price correction on single family homes before the value of my condo drops. Overall though, I think that unless you are moving to a cheaper part of the country, or making a major life change (downsizing for empty nesters, or buying a first home) the benefits or gains from moving in a hot or cold real estate market is minimal, because you will lose value in the home you are selling at a similar rate to the loss in value of the house you are buying.

  10. RhodesianRidgebackinAZ says:

    For God’s sake…don’t buy a house now. Things are going to get significantly worse.

    For the most detailed, intelligent analysis and discussion on the financial markets specific to housing (basically a free master’s level college class in economics) go to

    • DawnChicago says:

      RhodesianRiodgebackinAZ – thanks for the post. This was a very useful article. Can you let me know if this information is updated regularly and where I might obtain additional information? Thanks so much!

  11. bryan says:

    i too believe things will get worse. i would only be buying properties for the sole intention of renting them at a positive cash flow. if the numbers work and the opportunity is there, buy it. rent prices will only be increasing.even if home value goes down, you are still making at least the same money you originally calculated.

    as for buying a personal residence, wait 2-3 years. interest rates should remain relatively low

  12. Lord says:

    Things should worsen for at least the next few years. One can buy with the long term in mind or wait, but not if you have to sell first. I would not even look to buy before selling, and there isn’t much likelihood of that occuring with financing nonexistant.

  13. J.D. says:

    Here in Portland, prices are only now beginning to flatten. There’s some speculation that we won’t even see them fall!

  14. mbhunter says:

    People who bought recently and are now trying to sell may have trouble selling, I agree. Even if they take the house off of the market, it may not change their need to sell.

    If this looks like a buyers’ market now, it’s only because prices have been so ridiculous that any drop seems like a bargain. The same way that $2.40 gas seems like a bargain.

    I think we’re getting close to the point at which a lot of sellers will give up hope of selling, but we’re not quite there yet. I see lots of “For Rent” signs, owner financing, sell OR lease OR anything that will stop the financial hemorrhaging. There are plenty of happy-faced Realtors who really know how to sell. But when the buyers stop showing up because they can’t qualify anymore, then those smiles wear thin and the carnage ensues.

    The bailout will postpone this in some areas, but investor-held property will join the fire sale soon.

    Banks won’t let houses languish. They’re not in the property management business. They’ll sell at some price.

    Worry not. The bargains have just begun! 😉

  15. Ray Lora says:

    There is no doubt that things have changed lately. Yet, there is a solution to that… marketing or advertising. Before, buyers are the one chasing. Now, sellers should be the one to do the chasing. With the advent of technology, it’s really easy to reach the market, especially with the low cost it provides. All you have to do is to prevail among everyone else. You need to be equipped with the right marketing tools. Here is an example that could help you with your issue,

  16. Tom says:

    Here in Michigan, the housing market has taken a little tumble. With the big 3 cutting jobs and having one of the worst economies, I jumped in and bought a condo I couldn’t pass up. I was able to buy a brand spanking new condo just under 100k in a very nice neighborhood. Keep in mind that this place appraised for 145k. I thought I got a great deal.

  17. Lazy Man says:

    They say that you shouldn’t try to catch a falling knife. However, I think this is great dip. Seasonally, now is good timing as well. I think the prices will stay low for the next 18 months though. After all, that’s where all the resetting mortgages talk is coming from – not the problems now, but the problems in the future. I don’t know if prices will go down more though. I just expect that they stay stagnant during the next 18 months before getting better.

  18. Nick says:

    As Matt Wolfe pointed out, here is a major reason to believe that housing prices will continue to fall: they are completely unaffordable. In Los Angeles a crappy condo conversion (complete with $200-$300 association fee) goes in the $300k-$400k range.

    Assuming I can save up 20% of that high price for a down payment, my monthly payment including taxes and association fee is in the $2000-$2200 range… and that is for a crappy one bedroom condo conversion! Forget about ever living in a house anywhere closer than Palmdale. You might get by with 10% cheaper if you are willing to live in a gang neighborhood.

    Consequentially, anyone who is not already in the market with equity is priced out of the market. Prices have to come down so that even an average family can afford to move into a small home without having to devote every spare dollar and more only to put a roof over their heads.

  19. vh says:

    Housing prices aren’t just regional; they’re local. In the Phoenix area, prices in the few remaining middle-class central areas are holding pretty well. In the outlying suburbs, though, foreclosure rates are soaring and prices are tanking commensurately. If you don’t mind an endless commute through gawdawful traffic, this is probably a good time to buy a house located halfway to Yuma.

    We now have a plenty of those, after several years of bulldozing the spectacular and irreplaceable Sonoran desert at the rate of an acre an hour. The newer developments consist of poorly built, ugly elbow-to-elbow cookie-cutter styrofoam-and-mud houses of varying sizes and degrees of grandiosity. I’m not sure I’d bet the farm on stupid urban planning and greed-based construction.

    On the other hand, in the timeless American tradition, the middle-class infrastructure has followed white flight, and it IS a pain in the tuchus to have to drive to Scottsdale or the far west valley to buy clothing at anyplace other than Old Navy or WalMart. And if you have kids, private schools here are now so expensive you maybe forced to live on the outskirts to get the young people into safe schools that are more or less academically adequate.

    But as Nick points out, even with prices “down” the cost of a house is so exorbitant that, unless you can cover most of it in cash and keep your interest & principal payments to $800 a month or less, you may be better off renting.

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