I'll wait as long as I have to.  I'm not going to buy until it makes sense to move from renting to buying.  I expect prices to drop, but if they don't and I wait too long and I'm priced out forever then so be it.  I'm not going to pay beyond my comfort level just so I can be a home owner, and I'm in no rush, I'll just continue renting and investing and saving.  I just can't fathom how prices would continue to go up and up (such that a person would be priced out forever), unless peoples incomes keep going up and up at the same level.  My expectations are pretty low, I'm fine with a condo, but the prices just don't make sense.

My prediction is that prices will stay stable or may drop slightly, but still better to buy now.  Why, because interest rates are going to go up.  Government is pumping way too much money into the economy for it not to.  On a $300,000 30yr fixed at 6%, your payment is about $1800.  If rates go up 0.5%, you can now only afford a $285K loan, which means prices will have to have dropped 5% to have the same $1800 payment.  If rates go up 1%, you're looking at least a 10% drop in prices for the same payment.  Other factors should be considered with changes to prices (property taxes, down payment requirement, etc.) but the point is is that interest rates can have a bigger impact than you realize. 

I assure you that in a couple of years when you look back at the people that have secured 5% 30yr fixed mortgages, you're going to be envious. 

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silver wrote:

My prediction is that prices will stay stable or may drop slightly, but still better to buy now.  Why, because interest rates are going to go up.  Government is pumping way too much money into the economy for it not to.  On a $300,000 30yr fixed at 6%, your payment is about $1800.  If rates go up 0.5%, you can now only afford a $285K loan, which means prices will have to have dropped 5% to have the same $1800 payment.  If rates go up 1%, you're looking at least a 10% drop in prices for the same payment.  Other factors should be considered with changes to prices (property taxes, down payment requirement, etc.) but the point is is that interest rates can have a bigger impact than you realize. 

 

I assure you that in a couple of years when you look back at the people that have secured 5% 30yr fixed mortgages, you're going to be envious. 

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No I won't be envious.  I'll be glad I have a loan amount 1/3 to a half of what they have.

I know acquaintences that have 4.75% loans...but they have a mortgage of $900K.  That  same house they are now sitting in is worth $600K.

Tell me who's going to be envious.

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silver wrote:

My prediction is that prices will stay stable or may drop slightly, but still better to buy now.  Why, because interest rates are going to go up.  Government is pumping way too much money into the economy for it not to.  On a $300,000 30yr fixed at 6%, your payment is about $1800.  If rates go up 0.5%, you can now only afford a $285K loan, which means prices will have to have dropped 5% to have the same $1800 payment.  If rates go up 1%, you're looking at least a 10% drop in prices for the same payment.  Other factors should be considered with changes to prices (property taxes, down payment requirement, etc.) but the point is is that interest rates can have a bigger impact than you realize. 

 

I assure you that in a couple of years when you look back at the people that have secured 5% 30yr fixed mortgages, you're going to be envious. 

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Except that argument was made by a lot of people last year, and in fact, prices fell much more than 5% AND interest rates are lower now. I think the event buyers are waiting for is not some benchmark of price or interest rate, but rather for the banks to release the shadow inventory. As long as the supply side of the equation is being artificially manipulated, it stands to reason that you're not going to get as good a deal as you would in a free market.

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silver wrote:

My prediction is that prices will stay stable or may drop slightly, but still better to buy now.  Why, because interest rates are going to go up.  Government is pumping way too much money into the economy for it not to.  On a $300,000 30yr fixed at 6%, your payment is about $1800.  If rates go up 0.5%, you can now only afford a $285K loan, which means prices will have to have dropped 5% to have the same $1800 payment.  If rates go up 1%, you're looking at least a 10% drop in prices for the same payment.  Other factors should be considered with changes to prices (property taxes, down payment requirement, etc.) but the point is is that interest rates can have a bigger impact than you realize. 

 

I assure you that in a couple of years when you look back at the people that have secured 5% 30yr fixed mortgages, you're going to be envious. 

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As others have already mentioned, if rates do go up house prices should go down to match, because most of the other buyers will be able to afford less as well.  I'm hoping to buy at higher rates, meaning I will pay a lower principal amount, making my down payment more significant, and property taxes lower.  Plus if rates go down I can refinance the rate, but if I buy when rates are low and then rates go up I can't change the principal.

I have to agree with the cautious people on this thread. I know how much I can afford and houses will either get down to that price or they won't. There's lots of things I don't get to have in life and it may be the case that a house in LA is among those things.

There's zero chance that I will spend more than I want to on a house. I believe we are far from the bottom but there is so much corruption in the system I wouldn't be surprised if somehow housing never reaches its true bottom because of backroom deals and such.

As time passes and more of a depression mentality sets in, I find myself becoming even more disenchanted with prices because they reflect waste to me. I went to look at houses in the Hancock Park area recently. All modest homes, most built in the 20s, most asking around $1 mill. Before the downturn I might have looked at these homes and thought, "Huh. Cute houses. Overpriced." Now I look at those houses and think, "Who would want these old houses? No one wants tiny rooms like this. People don't live in rooms the same way. These are out of date. Why did the owners waste their money on granite counters?"And mind you, that's BEFORE taking into account the asking price.

I agree with many of the other posters, putting a time frame on purchasing a home would be silly. The heading of this topic is “How long will you wait”. The answer is: as long as it takes to see some stabilization and even growth……unless a nice $400,000 SFR opens up in Manhattan or Hermosa. I have always said I would rather buy a house after it has hit bottom and seen a 5% increase than buy too early and see another 20%+ decrease.

For the past 2 years realtors and some homeowners who are in denial have made all the excuses like “if you plan on staying for 5 years”, don’t miss the government tax credit, A home is more than an investment, etc.

Think about the “5 year” line. They are basically saying you will gain nothing or perhaps lose value up to the next 5 years. What if something unexpected happens (job loss, medical bills, etc)? This is part of the logic (or lack of) that got us into the housing crisis. In many areas of L.A. there is no rental parity, its not even close. There is an extremely high chance you will build no equity in the next few years.

The tax credit argument is silly. It’s miniscule compared to L.A. home prices. The article in the Times talked about a couple that bought a 750,000 condo and the $8000 tax credit saved them. Again this is another part of the logic that put us in a housing crisis. If you take on $750,000 worth of debt, $8000 should not make or break you. If it does you are on the edge and shouldn’t be buying.

Remember when realtors used to tell people that a home is the best investment. Now they are saying it doesn’t matter, since a home is a “home”.  Doesn’t this seem two faced?

While things could turn around soon they could also get worse. I’ll be the first to say there are positive signs in the economy. Many sectors are showing small gains and the wheels have just started rolling (albeit very slowly) on a recovery.

But one must also look at other cautionary signs like Bank of Americas latest results. You must also look at the growing number of credit card defaults, think about the people living on those credit cards and what happens when they max them out? Once they don’t have that $100-200 a month band aid we may see another round of mortgage defaults. Look at California’s unemployment, scary things there. One must also take into consideration the tougher lending standards. Take these lending standards and compare them to average income in each L.A. area versus home prices. Many people just can’t qualify anymore. That means either more homes on the market or lower prices.

On the other hand things could get better. Does this mean we need to rush back in? I don’t think so since NO ONE predicts a rapid rise in home prices anytime soon. Those that do predict any rise in real estate always but California, Florida, and Nevada as the last to recover. Since house prices won’t rocket back up, why hurry? If things do get better there will be plenty of time to buy.