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Of course prices may drop a little more before the bottom, but they are really low now in some areas. Interest rates may go down slightly, but they are more likely to go up in the future, what is the discount rate now like 0-0.25%?. So I'm thinking the best way to take advantage is to buy in the upper range, which for me is $200k. The lowest prices homes I've seen where I have looked are older houses in the $160-180 range.
The $200k homes have fallen from $550k, the $160k homes have fallen from $350k. If I wait until things turn around, I may never be able to afford one of the $200k homes.
The latest data I saw today shows a bottom around 4Q09-3Q10 with a drop in price from -8 to -15%. The homes in my area have already dropped 50-65% from the peak.
I remember asking someone about this a while back. It seems to me that the general concensus was that somehow the homes in the price ranges that you mentioned (the lower ones) were supposed to be the best idea because they were going to be hot sellers or something in the nearer future. The more expensive homes were going to be slow sales or slow value increasers for many, many years to come. For investment purposes, it seems like the houses in the $150k-$250k range would be the wisest move. This is just what I'd heard and gathered. We went against that advice but we are not buying for investment so much as we are because we love what we bought, and we dont have any plans of moving. We're planting it for a while :-)
My gut reaction is if the current real estate market has taught us anything, it's not to look at housing in terms of an "investment."
Buying at the top of your budget for investment reasons was the reasoning I heard throughout the bubble. The market is now showing us that when you're stretched to your limit, any little thing that goes wrong can put you out of a house.
Also, in considering how much more downside there may be in your market, please take into consideration the price trend pre- and post-1999. You can't fairly gauge how much something has to fall until you see how far up it went. Depending on the market you're in, you can rely on Case Shiller, NAR, or OFHEO for this data.
Lastly, everything I've read says that real estate bottoms tend to stick around for a while. They don't turn on a dime like the stock market. There is no V-shaped recovery. Don't worry so much about missing the bottom, worry more about getting in near the top.
Or, worry about inflation and what mortgage rates might do. That I wouldn't argue with that one bit.
PS. I'd be leery of relying on that CNN Money piece you cited. 4 of the 5 "sources" have a vested interest in the housing market turning around (Realtors and a mortgage broker). The 5th, Moody's, has been predicting that the bottom will arrive "next year"-- every year since 2007.
We went against that advice but we are not buying for investment so much as we are because we love what we bought, and we dont have any plans of moving. We're planting it for a while :-)
I'm no real estate agent, but I really like the idea of buying a property that you really like and would live in. Chances are, others will love it too. Right? That's why I never think about buying something for investment purposes...I just find something I want to live in. It will work out good when you sell.
Location: Mokelumne Hill, CA & El Pescadero, BCS MX.
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The investment part of real estate is about leverage. The reason real estate can be a good investment is that you can put down a relatively small down payment and control a larger asset value. This is also the worst thing about any leveraged investment, if the value goes down, you're underwater or worse. The commodities markets are an example of leverage having a big downside.
So your question about grabbing for a bigger property is about how much you are comfortable with a higher degree of leverage. For some, it's OK, for others the avoidance of a higher degree of risk is not worth the peace of mind.
My personal real estate investments are in land which can be subdivided. I pay cash for the property and build leverage with my time and effort. I'm comfortable with that, but it does limit the percentage return on my investment.
all investments have risk... there's risk in everything we do. Historically housing was relatively low risk, and only that now all the housing risk has been cashed in. Because everyone will continue to need it, it may be easy to guess that it'll be a good investment again in the future, but risk will always be there... for everything.
I'm not looking to buy as just an investment, I'm going from paying rent to buying my first house, so that is an investment to me. The higher priced homes are larger with more features, the condtion of the homes are the same. So I was wondering if it is wise to get more bang (larger house with more features) for the buck while the prices are so low? I would not be able to afford a larger home like that if prices go back up. And if home prices go up, I will have a larger chunk of equity dollars.
IMHO- glenn, just remember if you do buy a larger home with more features, there might possibly be more expense in maintaining or replacing stuff in the home. Just because you might catch the price 'lower' doesn't mean the overall operating costs associated with it will be lower also. Bigger often means that gas, electric, water costs are higher. Taxes, depending on how the area figures them. Insurance. Are there HOA fees for the home. A bigger, 'nicer' place may call for more costly, 'top of the line' items/materials for replacement or renovations. I have seen some really nice high end homes go lacking because owners literally couldn't afford the upkeep...
just throwing out some food for thought for you. I personally think it is wise to look beyond the initial cost of a home. Whatever you do, good luck to you! It is exciting, yet daunting to buy your first home!!
... Bigger often means that gas, electric, water costs are higher. Taxes, depending on how the area figures them. Insurance. Are there HOA fees for the home. A bigger, 'nicer' place may call for more costly, 'top of the line' items/materials for replacement or renovations.
I really agree with crazyma. I bought a detached home i love. It's twice the size of the townhome i had before, but, even with the condo fees for the townhome, my expenses for my current house are about three and a half times the townhome. (i'm not including the mortgage payments, just the cost of taxes, insurance, utilities, water/sewer, and maintenance.)
That said, if i had to do it over again, i would still have bought my current house. I fell in love with it the moment i walked in. But I think crazyma is right; you really should figure in what the cost will be year after year. Maybe there is more potential for profit in a bigger house in a better neighborhood, but, as other posters have said, that's not the best reason for buying a house, imho. I think you should buy a house because you feel good everytime you come home to it and it really is a shelter from an uncertain world. In my case, as long as that's true and i know i can afford it (not just the initial price, but the ongoing costs), that's where i'm going to live.
Good luck in your home search!
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