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I don't think the trends or forecasts are meaningless. When you've made the decision TO buy a new house (based on personal finances, etc., etc.) and decided what/where to buy, then the WHEN is a real consideration. Paying attention to trends and forecasts is an important part of that decision.
I don't believe anyone can time the market. If your focus is on timing the market, you will lose every time. Rather, I think you have to look at your personal situation which includes your financial and job situation and the type of home you are looking for. If you find the right home/situation and can afford it and it's offered for a relatively good price, you should buy it even at the possibility of losing additional money. Yes, you could lose money but you could also lose the house to another buyer so ask yourself if losing another 10-20K is worth losing the ideal house, for me it's not. I bought an investment property last year and it was a worthwhile investment. I can't say the same for my personal residence. I'm looking for a home for myself which I'm going to continue to wait because the two situations and goals for each home are entirely different. The Phoenix market is too diverse and an overall trend can't be applied to each situation. This is just my opinion of course, everyone has one.
Last edited by azriverfan.; 12-28-2011 at 12:15 AM..
We will agree to disagree. I don't place much value in overall trends. I place more value on research of personal variables such as personal finance, job outlook, location, neighborhood, size of home, year of home, proximity to job, proximity to schools. I think the latter takes precedence over a generalized trend when deciding to purchase a home. You can't pigeon hole people into large groups like "luxury home" vs "starter home" It's much more complicated and involved than that IMHO My strategy and philosophy has been successful so I'm sticking with it.
I must be missing your point because I am very sure you are smarter than how I am reading your words.
Like most people, I like to figure out what the trends are saying. For instance, George Burns lived to be 100 yet he smoked cigars every day. Should I ignore the research that says smoking causes premature deaths?
If you followed the trends over the past year, you would have learned that many pockets of more expensive Valley area homes are still dropping in value. If you found "luxury homes" rising in value, then those were statistical outliers. George Burns was also a statistical outlier. Of course some incredible luxury home value's might have multiple bids but that isn't a trend. But you said you are seeing homes drop in value. Well, if you are looking at the luxury home trend , it agrees with what you are seeing. Where do we disagree?
If you are waiting for the luxury market to fall while your current luxury home is also falling in value, how can you claim "your strategy is working?"
I don't believe anyone can time the market. If your focus is on timing the market, you will lose every time. Rather, I think you have to look at your personal situation which includes your financial and job situation and the type of home you are looking for. If you find the right home/situation and can afford it and it's offered for a relatively good price, you should buy it even at the possibility of losing additional money.
Now I'm really confused. Didn't you say just a few posts ago that your "strategy was working".
More specifically:
Quote:
Originally Posted by azriverfan.
.. IMHO My strategy and philosophy has been successful so I'm sticking with it.
You were referring to how much money you saved by not listening to the trends.
Let's re-wind to 2008. Most people felt that the housing market in Phoenix was going to drop so they didn't buy. That resulted in some record low sales months. Heck, I was posting in 2009 and 2010 that every bone in my body was expecting the values to drop further and many people disagreed. To me at least, it was obvious that there was more depreciation to go. Other agreed so sales were slow. Why would I ignore the trend of slow sales and its influence on home prices??
I focused on timing the market better than buying in 2009 or 2010. I went with the trends and statistics. I bought in early 2011 as I figured it was close enough. As luck would have it, my place has gone up in value. If it went down, I would be fine with that too.
But using trends makes a lot more sense than buying something when it simply feels good. I am not pretending that I have super powers. I also know that I make decisions all the time that cost me thousands (like not selling my MN home in 2008 when I "knew" it would drop tens of thousands of dollars for the sake of convenience).
I don't believe anyone can time the market. If your focus is on timing the market, you will lose every time.
I disagree with this point, when you're looking at the statistics, it's actually quite easy to time the market - you just have to tune out the "noise" from the television and the newspapers (be it hype or doom).
Some fears are irrational - even if they are persuasive and widely held.
The idea that real estate "can never go down", that you're "foolish" for paying off a mortgage, or that you're "catching a falling knife" when you're buying homes for less than they sold for in the 1980's are all things I've heard a lot over the years.
If you can do the math yourself, and forget about the "herd" - you can do fine.
The problem in Phoenix real-estate is that there's a huge herd, and it's sometimes difficult to tell if you're the leader or the follower!
Phoenix has a long history of booms and busts, and countless little "boomlets" along the way, but rents are and have been remarkably stable, so that's the measure I use.
If you're dealing with million-dollar homes, it's probably not nearly as accurate, but if you're dealing with properties at or near the average it's as safe as anything else you can buy.
I’m of the opinion that one cannot time a market, whether in the stock market or the real estate market.
In the stock market there are technical tools that people use to show buy/sell patterns that will provide buying signals. Many technical traders are adept at using those systems. However, many of those techniques involve watching the trend change from a down pattern to an up pattern, forming a W; then when the price goes above a trend line, falls back once, then continues up past the first point where it started falling back, that is the buy signal. There is some powerful software that computes any buy signal a trader can imagine.
They are not really timing the bottom; they’re clearly looking for a break out that is more likely to continue. While the Cromford Report does not provide any types of buy/sell signals like stock software does, they certainly have all the data and trend lines that provide sufficient information for people to make an educated guess as to what the near future will bring.
There will probably be many people renting now who will watch the real estate market closely for clear signs of change. Without watching data on a daily or weekly basis, they won't see that change until some time after the prices have increased.
Perhaps one could call that timing of sorts, but when I hear people talk about timing the real estate market, it seems to me that they are trying to get in right at the bottom; and that is the part that I feel cannot be timed.
Mn-born-n-raised made his decision to buy before he felt the market had hit bottom. That was not timing, as such. His decision was made based on his knowledge of the market, and knowing that the prices could go down further; however, given the type of investment this was, it didn’t matter if prices declined further because he will be making a profit on his investment.
It seems that most people feel if they buy a home as a residence, that the price must go up, or else it’s a bad move. However, most people buy a home to live in for a long time, and prices are always going to go up, and go down, in short term cycles. I’ve seen that happen since I bought my first house in 1963. But the long term trend has been up, and partly along the lines of inflation.
A client of mine, who has become my friend, bought a home across the lake from me for $1.2 mil in 2008. Today the current value is around $900k. He purchased the home with cash and does not plan to sell it during his lifetime. It doesn't matter to him how this current "glitch" in the market values his home.
He bought the home when there were quite a few choices of nice waterfront homes, and was able to get the cream of the crop. The home is beautiful, and has the perfect location and orientation on the water. Today the choices are not there. I just sold the last two good houses on the water.
There are only two remaining now, and they aren't the ideal properties. There are a couple of excellent waterfront homes I'm aware of that are waiting to get back on the market, but at higher prices. They won't let their homes go at pre-2000-era prices.
When I was rehabbing homes, it didn’t matter to my rehab business if real estate prices were going up or going down. What mattered most was having a large supply of homes to choose from, and being able to buy a home at a price where I could invest time and money rehabbing and then sell for a reasonable profit.
Today it is much more difficult to do that because the supply is too low, and there is too much competition for homes to rehab; plus the prices have become too high to be able to make a profit. I see quite a few rehabbed homes where I know the rehabber is taking a loss because they had to pay too much for the home before rehabbing. With the real estate shortage we have now, the rehabbers have to compete with the landlord investors and occupant buyers who can pay more money for the homes.
During the period since the 2005-2006 run up, it’s been commonly thought that anyone who bought a home after that period and up to now has lost money on their home. First of all, a piece of real estate, in some regards can be considered in the same way one may consider a share of stock:
Whether the stock price, or real estate price has gone up or down, the owner has not made a profit, nor incurred a loss as long as s/he still owns the stock or real estate. That is known as a "paper loss, or gain".
One notable difference in stock and real estate is:
With stock, the owner has paid full price and is not receiving any tax benefit during the holding period.
Whereas with real estate, the owner probably only has 5-20% down payment invested, and is enjoying the property as their own residence, and also receiving tax deduction benefits.
Another thing to consider is this, and I’ll give an example:
Mr. A, in late 2004 purchased an AZ home for $650,000. Today the home is valued at $525,000.
One could say that Mr. A has “lost” $125,000.
That would not be a correct statement, because Mr. A is still enjoying the benefits of the home. He will not have lost any money on that home unless he sells it today.
However, consider Mr. A's home purchase history; and this is what happened in a large number of cases from 2004 to today.
Mr. A had lived in California, and over the years his house had appreciated from $500,000 to $1,500,000.
He sold his CA house for $1,500,000 and purchased the AZ home for $650,000.
During 2005 and 2006 both homes increased in value “on paper”.
The AZ home in 2007 was valued at $900,000.
But note that Mr. A did not have a profit on the home because he did not sell it.
Today the CA home that he sold is valued at $1,000,000 and his AZ home is valued at only $525,000.
Is Mr. A worth more today than he would have been, or has he experienced a loss?
He is worth more today than he would have been had he kept the CA home:
$500,000 Purchase price of CA home
$1,500,000 Sale price of CA home
$1,000,000 actual profit on CA home
$650,000 Purchase price of AZ home for cash
$350,000 cash left over
Note that while he has experienced a “paper” loss of $125,000 on the AZ home, Mr. A is far ahead of the game.
Had he kept the CA home (not buying the AZ home) and sold it today where the current value is only $1,000,000 his “paper” profit would be only $500,000 (over his original purchase price).
So while on the surface it appears as if Mr. A has lost $125,000 “on paper”, he is actually up $875,000, instead of $500,000 that he would have been up had he stayed in CA and kept that home.
This scenario was played out many times over during 2007-2010.
People sold a home in another state where the cost of real estate is higher.
They purchased a home in AZ for a lot less money, during the same time period.
The “paper” value of their current home has declined, and so has the value of the home they sold in another state.
And remember that the home in the other state was usually of a higher value.
Had they stayed in the home in the other state, the “paper” value of that home would have declined also, and possibly at a higher rate than in AZ.
My situation is similar to Mr. A. However, I purchased my home in AZ 3 years prior to selling my CA home. So while the current value of my Gilbert AZ home is less than I paid, I am ahead because I had a large appreciation from my CA home.
My purpose is not to make light of the decline in value of our Phoenix area homes, because the amount of decline, (back to pre-2000 era prices) was drastic, which surprised me and many others.
My purpose is to show that many people who sold their homes in other states, post boom, and bought in AZ, only traded one position in a home for another, and in many cases they are better off financially for having made that trade.
I’m of the opinion that one cannot time a market, whether in the stock market or the real estate market.
Perhaps one could call that timing of sorts, but when I hear people talk about timing the real estate market, it seems to me that they are trying to get in right at the bottom; and that is the part that I feel cannot be timed.
Mn-born-n-raised made his decision to buy before he felt the market had hit bottom. That was not timing, as such. His decision was made based on his knowledge of the market, and knowing that the prices could go down further; however, given the type of investment this was, it didn’t matter if prices declined further because he will be making a profit on his investment.
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We agree, it is impossible to time the bottom. I don't think I was lucky when I predicted housing to drop in 2009 and 2010. Of course I could have been wrong. Some rather smart people were predicting the bottom in 2009 and 2010 so certainly nothing was for sure. When there was that run-up during the buyers credit, I started to wonder if I missed my chance to pick up deal. It's all about probabilities.
My housing Economist customer told me in late 2010 that he thought the "bottom" for Phoenix would be June. Disclaimer: in 2004, the same guy thought housing was not going to go down (I debated him as to why I thought he was wrong).
I didn't see the logic of prices dropping much lower in January of 2011 for the price, size, and area I wanted no matter what ARMLS said. It turns out I was correct. But the main reason I wanted to buy before the rest of the people thought the bottom was in was for selection and negotiating power. Therefore I got what I want and I got a killer deal.
I bought the home to keep it. But until I use it over the entire winter, I am renting it out furnished. I'm being paid $20K for 16 weeks so I have positive cash flow. So my risks are mitigated. If it goes down some, I make a little versus plenty. If it goes up, then I make money on the appreciation and the rent. Most importantly for me, I got what I want because I jumped in before the masses.
Below is the latest Case/Shiller index report with many primary cities across the country for comparison on their own report, courtesy of the Cromford Report .
I highlighted some of the cities, not not all of them because had I highlighted all the cities the chart would be too full to read.
Note that among the cities I highlighted, and more, Phoenix is the only one that showed an increase. The increase was from:
100.22 September 2011, to
100.54 October 2011
Naturally they're picking up the price increase from September that we have been seeing. Since the prices have increased further in Nov and Dec to date, the next two C/S reports will also show an increase.
Why is Phoenix showing improvements when many of the other cities are not? Here are some probabilities:
Phoenix economy has been improving
Jobs have been added, and should continue to be added
Builders have begun to build again
Phoenix is still attracting snowbird home buyers
Phoenix is still attracting retirees
Phoenix is still attracting non-retirees who relocate here for jobs and the weather
One of the main reasons is most likely the fact that we do not still have the huge foreclosure problem that other cities have. Our rate of Notices of Trustee Sales has dropped tremendously as has been reported in other posts.
That means a continuous reduction in the actual foreclosure rate, and a continuing decline in bank owned homes inventory.
9235 is the current total number of bank owned homes, down from over 19,000 in May 2011. Of those homes, approximately 4,900 are currently listed on the MLS as either Active, AWC, or Pending.
That leaves about 4,300 bank owned properties not yet listed. It takes from 1-3 months for them to go from the foreclosure auction to the MLS, so a lot of them are in the process of being prepared for listing.
These numbers also show that the banks are getting many of those homes on the market that had previously been held off for some reasons.
Man. I've been trying to buy a home with FHA, but coming up short because of cash investors beating me out every time (which is understandable since cash makes everything smooth). I'm trying Fannie Mae Homepath now-- missed out on one home, and the other was ridiculously overpriced-- and their only came down 5k on their asking price with their counter.
I'm not sure what to do. I've been at it since October.
Man. I've been trying to buy a home with FHA, but coming up short because of cash investors beating me out every time (which is understandable since cash makes everything smooth). I'm trying Fannie Mae Homepath now-- missed out on one home, and the other was ridiculously overpriced-- and their only came down 5k on their asking price with their counter.
I'm not sure what to do. I've been at it since October.
All you can do is be first, or consider properties that make others cringe a little bit. Repairs make many investors (and regular buyers) run, but labor and materials aren't nearly as expensive as many people assume they are.
I helped my little bro find a place when the tax-credit was still out there. In the neighborhood he liked, any house under $100k was gone in a couple of days - usually to an investor. We found him one with a leaky garage roof, and the drywall in the garage was starting to fall down. The home had been on the market for a couple of months, and had been shown probably a hundred times, judging from the stack of realtor-cards on the kitchen counter. He went in at $65k and made the bank pay for all of the closing costs. Repairing the roof was $500, and the garage drywall repair was $400.
He's been there a couple of years now, and he liked the neighborhood so much, that when my parents came down to visit last winter, they looked at another lender owned property down the block. Same deal, leaky roof, damaged drywall, and this time a missing garage door opener and water heater.
Roof replacement was $1200, the water heater was $225, and a new opener was $200. Similar homes in "perfect" condition were selling in a couple of days at about $85~90k. They paid $62k.
In your position, I'd consider doing either a homepath "renovation" loan, or an FHA 203k "rehab" loan & polishing up a place that has a few scuffs. There are tons of excellent building tradespeople who are barely scraping by right now, so I doubt it's ever been cheaper to freshen up a house or have repairs made if you're willing to jump through a few hoops with financing.
All you can do is be first, or consider properties that make others cringe a little bit. Repairs make many investors (and regular buyers) run, but labor and materials aren't nearly as expensive as many people assume they are.
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Agreed. People are one or two problems deep. After that, they punt. The one I bought had a bunch of small things wrong totaling $3K. But that's enough problems for many people to pass.
I did't mind if cupboards were missing (mine weren't). That's a huge turn off for most buyers. That's about the only way to pick up a deal these days.
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Phoenix area real estate
