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I am looking opinions in response to the following theory I have, developed from years of experience in booms and busts in the residential home market...
1. most Buyers are like dumb lemmings; they buy when prices are going up and run away when prices stabilize or decline
2. Smart buyers know that the time to buy is at the bottom, not the top (just like stocks)
3. There are not many smart buyers
4. The real estate market is not like other commodity markets in that many sellers do not have to sell and are stubborn about lowering prices to meet the actual market conditions
5. In a fast moving market (up or down), comparables older than 30 days are useless.
6. In a fast moving up market, sellers are willing to use 30 day old comps; in fast moving down market, they are not
7. Realtors, sellers, and builders (especially builders) will try all kinds of gimmicks (free stuff, bonuses to agents, free upgrades, vacations, etc) instead of recognizing the reality of a declining market and lower prices
8. If the residential real estate market acted in the textbook way of capitalism, they would correct themselves much more quickly.
Looking for all responses, positive or negative or elaborations.
A couple of comments.
2. Yes, the smartest time to buy is at the bottom of the market. The problem is identifying when the bottom has been reached. Thus, the smartest that is doable is to buy in a declining market. (Of course, there may be non-market reasons to need to buy or sell -- new jobs, lost jobs, etc.)
4. The real estate market is not like other markets because it is not liquid. A stock can be bought or sold in one day, similarly commodities. Houses may have a theoretical value at any point but this doesn't mean there is a buyer at that "value."
5/6. Comps are always useful. They may not tell you what your house is worth today, but they tell you what has been happening with houses similar to yours. It may not make sense to price your house for the amount of the comp, but it makes sense to evaluate it along with any other factors.
7. Builders would rather offer incentives than lower prices -- among other things because of others who have bought at the higher price and because they don't want other buyers to press them to lower prices, especially if the market improves.
8. Houses cannot act in the textbook way of capitalism, because the textbook theories are based on fungible goods. A bushel of corn is a bushel of corn. A gallon of milk is a gallon of milk. Every house is different, in terms of features, location, condition, etc. Also the housing market is tied very closely to the mortgage market. If housing prices fall but mortgage prices rise, the affordability to most buyers has not changed.
Any house can be sold at the right price in any market. Sellers might not want to accept what the right price is. If they don't have to move, they may not want to. If they owe more than their house is worth, they may not be able to.
Any market can be a good time to buy and a good time to sell, depending on an individual's reason for buying and selling. In my opinion for the average person a house should be considered a place to live, not an investment.
I am looking opinions in response to the following theory I have, developed from years of experience in booms and busts in the residential home market...
1. most Buyers are like dumb lemmings; they buy when prices are going up and run away when prices stabilize or decline
2. Smart buyers know that the time to buy is at the bottom, not the top (just like stocks)
3. There are not many smart buyers
4. The real estate market is not like other commodity markets in that many sellers do not have to sell and are stubborn about lowering prices to meet the actual market conditions
5. In a fast moving market (up or down), comparables older than 30 days are useless.
6. In a fast moving up market, sellers are willing to use 30 day old comps; in fast moving down market, they are not
7. Realtors, sellers, and builders (especially builders) will try all kinds of gimmicks (free stuff, bonuses to agents, free upgrades, vacations, etc) instead of recognizing the reality of a declining market and lower prices
8. If the residential real estate market acted in the textbook way of capitalism, they would correct themselves much more quickly.
Looking for all responses, positive or negative or elaborations.
Spot on!!! Especially point #7 and #8
Giving away freebies to levitate comps is a total gimmick.
Many people highly leveraged in real estate are silent about gubmint bailouts thinking it will help their bottom line. In effect, their silence helps reflect good socialism-esque behavior, but Uncle Marx potentially coming to the rescue will not change much. Keeping people in homes they cannot truly afford will actually make things worse.
Walking away from your house if it's upside down hurts you very little (7 year credit hit), but helps you a lot by minimizing risk.
You left out one of the major reasons people buy homes and that is based on purely emotional reasons. They may give economics a quick thought but if the 'experts' say they can afford a home in a given area they are looking.....BINGO! We have a sale. IMO people move to and from areas for a change in their present life situations. Albeit for their jobs, family, or environmental change. They are coming and will continue to come to purchase in a given area because its the best choice they have available to them at that given time.
Many posters in this forum are looking to get out of their present areas due to Taxes, Cost of Living, Crime, their Families moved here, basically to better their quality of life. As long as the area continues to be better than where they are currently living this trend will continue irregardless of home prices here. IMO they are moving based on emotional reasons and not purely economic reasons.
You left out one of the major reasons people buy homes and that is based on purely emotional reasons. They may give economics a quick thought but if the 'experts' say they can afford a home in a given area they are looking.....BINGO! We have a sale. IMO people move to and from areas for a change in their present life situations. Albeit for their jobs, family, or environmental change. They are coming and will continue to come to purchase in a given area because its the best choice they have available to them at that given time.
Many posters in this forum are looking to get out of their present areas due to Taxes, Cost of Living, Crime, their Families moved here, basically to better their quality of life. As long as the area continues to be better than where they are currently living this trend will continue irregardless of home prices here. IMO they are moving based on emotional reasons and not purely economic reasons.
This discounts the advantages of renting vs. purchasing. There is an unavoidable phenomenon similar to P/E ratios in stocks. When rent is more cost effective than mortgaging, emotions are typically shelved in favor of the more practical financial decision. Renting a house in Raleigh is sometimes much more cost effective than "owning" (in quotes b/c first few years is hardly owning for 0 down types). People overestimate the emotion factor in house purchases.
You left out one of the major reasons people buy homes and that is based on purely emotional reasons. They may give economics a quick thought but if the 'experts' say they can afford a home in a given area they are looking.....BINGO! We have a sale.
I think this can work in both directions. When the media was filled with "flip this house" stories about real estate going up 20% a year, it was a no-brainer for most people to buy. Financially, what could go wrong when real estate always goes up? As the tide turns and the news is filled with things like "worst housing market since the great depression" (actually saw this one - nice hyperbole) and people losing their houses and going into bankruptcy because they couldn't afford the mortgage, it'll scare people just as irrationally the other way. There may be perfectly good houses for good prices available even during a down market, but on average who's smart enough to do the math to figure it out instead of just making an emotional decision based on all the bad news?
I am looking opinions in response to the following theory I have, developed from years of experience in booms and busts in the residential home market...
1. most Buyers are like dumb lemmings; they buy when prices are going up and run away when prices stabilize or decline
2. Smart buyers know that the time to buy is at the bottom, not the top (just like stocks)
3. There are not many smart buyers
4. The real estate market is not like other commodity markets in that many sellers do not have to sell and are stubborn about lowering prices to meet the actual market conditions
5. In a fast moving market (up or down), comparables older than 30 days are useless.
6. In a fast moving up market, sellers are willing to use 30 day old comps; in fast moving down market, they are not
7. Realtors, sellers, and builders (especially builders) will try all kinds of gimmicks (free stuff, bonuses to agents, free upgrades, vacations, etc) instead of recognizing the reality of a declining market and lower prices
8. If the residential real estate market acted in the textbook way of capitalism, they would correct themselves much more quickly.
Looking for all responses, positive or negative or elaborations.
This is ridiculous. Who has the ability to treat real estate as a liquid investment? I have a family. I bought a larger house because I had a child. I don't have the ability to buy and sell my home on a whim. According to your logic, was I stupid for not selling my home in 2006 and moving my family into a rental? Should I believe the predictions of declining prices for the next 10 years and keep my family in an apartment for an entire decade? That's 10 years of my life that I can't get back...I'd rather spend them in my own home than living in an apartment. And what if prices DON'T go down, but instead go up while I'm renting? Then I may never be able to afford a nice home.
I assume I'm not unique in this respect, and that there are alot of 'families' out there. We take market conditions into account, but we mostly base our decisions on life-changing events.
I might also add that the doomsayers are the loudest at the bottom of the market. So if you base your decisions solely on gloom-and-doom predictions, you're going to miss out on a good opportunity.
This discounts the advantages of renting vs. purchasing. There is an unavoidable phenomenon similar to P/E ratios in stocks. When rent is more cost effective than mortgaging, emotions are typically shelved in favor of the more practical financial decision. Renting a house in Raleigh is sometimes much more cost effective than "owning" (in quotes b/c first few years is hardly owning for 0 down types). People overestimate the emotion factor in house purchases.
Frudy, this is true. I made the assumption the families moving here to better their life's already owned a home somewhere and wanted to buy immediately upon moving here. Renting is always an option.
This is ridiculous. Who has the ability to treat real estate as a liquid investment? I have a family. I bought a larger house because I had a child. I don't have the ability to buy and sell my home on a whim. According to your logic, was I stupid for not selling my home in 2006 and moving my family into a rental? Should I believe the predictions of declining prices for the next 10 years and keep my family in an apartment for an entire decade? That's 10 years of my life that I can't get back...I'd rather spend them in my own home than living in an apartment. And what if prices DON'T go down, but instead go up while I'm renting? Then I may never be able to afford a nice home.
I assume I'm not unique in this respect, and that there are alot of 'families' out there. We take market conditions into account, but we mostly base our decisions on life-changing events.
I might also add that the doomsayers are the loudest at the bottom of the market. So if you base your decisions solely on gloom-and-doom predictions, you're going to miss out on a good opportunity.
Your argument on moving back into an apartment is a non-sequitor. Moving a family from a house you mortgage to one you rent is little different than moving from one your mortgage to another one you mortgage. If you believe your life might change in the near future, it may actually be to your advantage.
Doom doom doom doom doom doom!!! (sarcasm)
"Doom and gloom" should be a new bumper sticker. That tired old saying is apparently catching on as readily as "have a nice day".
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