Interestingly, many “experts” feel that being fat and starving is closely related. Poor people are forced to eat fatty food because fatty food is the cheapest food. The logic goes something like this, “Over 25% of theU.S.population is starving because they cannot afford food. As a result of this condition, they are forced through food stamps and other state (WIC), county and charitable (food bank) programs to consume fatty food (like rice, cereals, dairy products, peanut butter, etc.) which causes them to be fat. Have to love the logic.
I really like N.J. Governor Chris Christie’s comment, “I am fat because I eat too much”. What an observation, notice how simple and logical it is. But, as we all know the “experts” tell us the simple logical answer is always the wrong answer.
The question FRAC used to determine their statistics is a joke. People love to feel they are victims and the question was worded to appeal to that “victim” status.
Many of my “veggie eating” friends only spend a few dollars a day on food, easily within anybody’s budget (that is unless I am taking them out to lunch or dinner - for some reason that is different).
Now back to writing an offer for a client – a simple offer from a simple Realtor ®, which I like to think is usually the best offer.
You said..........The question FRAC used to determine their statistics is a joke.
Groundhog sez........A Gallup poll is a Gallup poll............ Excerpted text "Gallup asked the question of 352,789 households in 2011".
Good luck with your simple offer writing, I hope it closes. BTW, there are various and sundry Real Estate articles in the Sunday OC Register today as usual. It appears to me none of these are optimistic regarding our local or national RE market, IMHO.
The housing market will not get better soon..........Just a simple opinion by a simple groundhog.
It is another beautiful day today, lousy economic and RE market conditions notwithstanding, I remain a cheerfully grumpy old surf rodent!
Well, no, I disagree, Bob. If interest rates nudge up a little, I think prices will come down to compensate, and overall the deal will be even better for me next year -- a bigger tax deduction, the better possibility of a refi in the future, and a lower buying list price means my future profit on sale will be higher.
I look at it this way: there's a pool of buyers that include myself, people with a certain income and cash balance who are going to finance the purchase. We can all afford about the same monthly payment, let's say (for the sake of argument) $4000. If interest rates are very low, a $4000 monthly payment corresponds to a pretty high list price, let us say $600,000. So me and all the others in the pool are potential buyers for anyone who wants to sell a house for $600,000. We'll mostly come to his open house, and some of us will bid, so he's likely to sell the house.
But what if interest rates bump up without (and this is very important) any compensating increase in our salaries and cash savings? In that case, the $4000 monthly payment corresponds, as you note, to a lower list price, say $550,000. All of a sudden, me and the entire pool of potential buyers are no longer looking at that house priced at $600,000 -- because we can't afford it. We don't go to the open house, we don't submit bids.
Does the house still sell? Sure, maybe. People who could've afforded a $700,000 house in the lower interest-rate environment can still afford a $600,000 house in the new higher interest-rate environment. One of them may well buy the house. But clearly the number of such people will be less than the number in my pool -- because they all must make substantially more money, and there are always fewer people the higher you go in income.
But what I think happens is that the poor seller is forced to reduce his price, to $550,000, so that I and all the others in the pool can once again be potential buyers. Simple supply and demand: rising interest rates push demand down at a given price point, so if you want to sell, you're going to have to lower the price.
I'm sure there are lots of individual exceptions in various markets and at various times. I only think this is the general trend. Or rather, I should say, this isn't my idea: this is what the Federal government tells us, because they are holding interest rates very low right now specifically in order to prevent house prices from falling. If holding rates low causes prices to stay up, what do you think rising rates will do?
Seneca said: "Well, no, I disagree, Bob. If interest rates nudge up a little, I think prices will come down to compensate, and overall the deal will be evenbetter for me next year -- a bigger tax deduction, the better possibility of a refi in the future, and a lower buying list price means my future profit on sale will be higher."
In the post you've replied to, I said that "if you find a perfect house, you might as well buy now" or something to that effect.
So, we will definitely disagree, regarding the points you just made. The ONLY ups and downs of this year's two distinct selling seasons ( firming up, and nudging up, between now and July or August, followed by slowing down, and nudging back down, going into the fall and Holidays.) will be more from pent-up demand - or that eventually being spent - than from interest rate fluctuations, in MY opinion.
If prices are down, this time next year, it is MY opinion, that they won't be more than 2-3% down, which is - to me - essentially a wash, not worthy of getting concerned about. Meanwhile, if interest rates have gone up as little as half a percent, that 2-3% dip in prices is STILL trumped by the change in rates.
The bottom line, which most bearish types refuse to acknowledge, is that the thing to focus on is your monthly payment, which for 30 years will remain the same, rather than some minuscule temporary descent ( Again, MY opinion.) of housing prices.
All this, of course, is merely MY opinion. Thanks for reading.
Bob Phillips - Realty ONE Group - South Orange County, CA
Sure, Bob, I fully agree with your leading sentiment, that if you find the right house at a reasonable price, go for it. I will, if that happens. My only point, you'll recall, is that I'm not going to be stampeded into buying because a realtor says buy now before interest rates go up. I don't fear interest rates rising. I don't think they're going to substantially affect how much house I can get for what I can afford, because prices are going to come down to compensate for interest rates going up. It'll be a wash.
In fact, to be honest, since I'm buying a house to live in rather than make money, I'm not all that interested in buying at the exact bottom of the market. I'd actually rather buy when it's on the clear upswing after the bottom, because in an early seller's market (or what seller's anticipate will be a seller's market) the selection should be much larger, and I've got a much better chance of getting exactly what I want. So what if I need to pay $20,000 more? I'm not trying to make the maximum possible profit.
As much as people talk about a "pent-up demand" in real estate, I think there is a much larger pent-up supply. I'm not talking about REO and shadow (pre-foreclosure) inventory. I'm talking about people who could sell their houses, but don't want to, because they're hoping to get a better price in 2-5 years. They want to retire, move closer to the grandkids, downsize, upsize, shorter their commutes, et cetera, but right now, the prospect of collecting half as much cash at closing as they'd have seen 3 years ago is putting a big damper on that. You can just look at the inventory -- it has plummeted in the last year and a half. People are just not selling their houses if they can avoid doing so.
Of course, many of them sooner or later will have to, and I think as a general rule, quite a lot are operating under a happy delusion (vigorously encouraged by everyone in government and home-selling business) that things will get a lot better quite soon, so you might as well hold out a little longer if you can. Myself, I think that's silly. If I had a house to sell, I'd sell it right now, because the chances of getting 2005 or even 2010 prices any time in the next five years are slim, and there is a decent chance of getting much lower prices when rates rise, or if there is some other kind of nasty macroeconomic implosion (currency crisis, recession, about-face in monetary policy, Eurogeddon, Iran war, massive tax hike, huge shift in the health-care industry).
Government has done its level best to halt the slide in prices, and it has actually succeeded admirably. The smart money should realize, however, that what we've got here, the "shelf" in the housing prices, could very easily be just a temporary plateau, provided by government at enormous expense, that gives you a chance to exit before the elevator resumes its plummet to the bottom of the shaft. At least, that's what I would fear, if I owned a house and imagined I might want to sell it any time in the next half decade.
But I can understand how people think differently. It's a home, people get attached, and they can't make coldly rational decisions about it.
The shady denizens of The Rodential RE Underworld are all asking, WHERE IS THE RE-Guy CHART????????????
Anyway, I just thought since you are hanging out again (at least a bit), you might do a new B&B Chart for your fans. You do have many fans on this Forum, IMHO.
Here's an interesting article from a blogger on Zillow:
Why the Property Price is of Low Importance March 2, 2012
Too many potential real estate buyers pay way too much attention to short-term price changes. People are so worried that prices might drop a little and feel that maybe they should wait to buy something. So if you think you can predict the future, follow your beliefs! However, the reality is that the price, within reason, really should be a secondary matter in your search for a good property to purchase.
The main reason that price is less important is that individuals who want to increase their net wealth from real estate ownership , which is the goal of many buyers, should only be purchasing property that they will hold for a long time. The longer the better and a minimum of five years is probably the breakeven point to start building wealth. It is more likely than not that down the road, years after our economy has sprung back to life, real estate prices should be much higher than what people paid for properties in the next twelve months.
Affordability is now
In 2020 or 2022, you won’t even remember the 2012-2013 price fluctuations. You’ll just be gloating to yourself how brilliant you were buying into the market ten years ago. Not only will you have purchased a great property at the most affordable pricing seen in decades, but you will probably have locked in an outrageously low interest rate on a mortgage that can be fixed for thirty years!
But, what if you buy and prices drop a little? Who cares! It won’t matter because you purchased a great property that you love for all the right reasons. You want to own real estate and any slight dip in the next year or two should be a wholly irrelevant short-term blip on the radar of a long term real estate holder.
In addition, in many areas right now, your monthly payment for ownership (including principal, interest, HOA fees if any, property taxes, and repairs) may be close to or less expensive than renting . That alone is an amazing turn of events in the history of personal residence ownership. This is more likely true for moderately priced properties. Even expensive, untouchable properties a few years ago are astonishingly affordable right now!
Buying is not for everyone
Now this doesn’t mean that it is the right time for just anyone to buy property. If you are not 100% sure you will own the property for a long time, it is probably smarter to stay a renter. If you move often, renting is probably a better option..
Additionally, this doesn’t mean that you can just buy any property to build wealth. You should probably avoid properties that need:
Significant rehabilitation work
Properties in HOAs where the association is in bad financial shape
Properties in areas where there are lots of foreclosures, high vacancy, near lots of buildable land
Areas where the local economy is in desperate shape.
Rarely are those wealth-building purchases. Go for the properties that are in better shape or in more stable areas with jobs and economic development.
For buyers who are too focused on price, are worried about short-term price drops and are holding off on buying, we long-term holding real estate buyers can only say thank you so much! Please keep obsessing over those monthly housing price reports and stay on the sidelines!
With less competition in the market, it makes the process of finding a great home to secure, and with those incredibly low interest rates, only sweeter for the rest of us who are charging forward to buy a property in the best buying environment in a generation!
Leonard Baron, MBA, CPA, is a San Diego State University Lecturer, a Zillow Blogger, the author of several books including “Real Estate Ownership, Investment and Due Diligence 101 – A Smarter Way to Buy Real Estate”, and loves kicking the tires of a good piece of dirt! See more at ProfessorBaron.com.
All this, of course, is merely MY opinion. Thanks for reading.
Bob Phillips - Realty ONE Group - South Orange County, CA
Here's an interesting article from a blogger on Zillow:
It is more likely than not that down the road, years after our economy has sprung back to life, real estate prices should be much higher than what people paid for properties in the next twelve months.
Past performance is not necessarily indicative of future results.
