Is it time to buy? (Sacramento, Roseville: short sale, foreclosure, rentals)

[edwardius]

Originally Posted by j760

I agree, live for today. You never know if there will be a tomorrow, if you can afford a home and find a place you like then just go for it.

Of course if you followed that logic and bought last year, you are already upside on your mortgage. In markets that are falling 20 to 30% a year, it really can pay to wait for prices to stabilize.

When prices are falling this rapidly, what is the risk in waiting?

[DMenscha]

You keep using the 20 to 30% per year figures yet I'm sure the median and average prices aren't falling at that rate now. No one knows the exact bottom of any market, including the real estate market, but I'm seeing the buyers start to express interest more than they have in the past year and some multiple offers on bottom priced property. It smells near a bottom to me. Plus, the prices are getting very close to their historic trendline which also indicates support to me. What do I know though?

[edwardius]

Originally Posted by DMenscha

You keep using the 20 to 30% per year figures yet I'm sure the median and average prices aren't falling at that rate now.

The change in real estate prices in the past year isn't a matter of personal opinion where reasonable people can reasonably come to different conclusions. Its a matter of public record.

Dataquick and DQNews have compiled sales by zipcode. This is data from there most recent release. The drop in price per sqft by zipcode in this area from there most recent release is generally 20 to 30%. See the data here

http://www.sacbee.com/static/weblogs...IP%20CHART.xls

and a map based upon that data here.

Sacramento Home Price Trends By Community - Sacramento News - Local and Breaking Sacramento News | Sacramento Bee

[DMenscha]

I get the historical data, I'm saying that after 2 years of falling by the amounts you show, the floor may be nearby. Just like prospectuses, past performance in no guarantee of future performance.

[divetatoo]

Another thing to consider is much data is based on an overheated market that had the loosest lending practices in our history. My question is why would you wait? Do you think you are the only one waiting? And if you feel that you should wait, what will be the deciding to factor to stop waiting?

Tax breaks are still great for real estate purchases as well as the simple fact of paying yourself instead of a landlord. Equity only matters if you cash it out. The question becomes what it motivating a person to buy. Regardless of what is said, if you buy now you will be in a better position when the market turns as a person who buys in the turned market.

[edwardius]

Originally Posted by DMenscha

I get the historical data, I'm saying that after 2 years of falling by the amounts you show, the floor may be nearby. Just like prospectuses, past performance in no guarantee of future performance.

Unlike the stock market, real estate prices have momentum. When prices are going up they tend to keep going up, when they are going down they tend to keep going down. Unless and until prices do turn around, I see no reason to buy now. But the present direction of real estate prices is very important.

Moreover there are solid reasons to think that this downturn has legs. The major employer in the region is state government and it has a budget deficit of at least 27 billion dollars. That means there is a pretty good chance of further layoffs in the largest employer in local economy. When people are losing there jobs, they aren't in a position to start bidding wars over housing. The local unemployment rate is continuing to grow. You can't point to another part of the local economy and say it will bail us out. Unemployment in manufacturing is down, construction, retail services.

For employment to stabilize in the area, housing prices are going to have to get cheap so it can start attracting employers from out of the region. We are not at that point yet.

[edwardius]

Originally Posted by divetatoo

Another thing to consider is much data is based on an overheated market that had the loosest lending practices in our history. My question is why would you wait? Do you think you are the only one waiting? And if you feel that you should wait, what will be the deciding to factor to stop waiting?

Tax breaks are still great for real estate purchases as well as the simple fact of paying yourself instead of a landlord. Equity only matters if you cash it out. The question becomes what it motivating a person to buy. Regardless of what is said, if you buy now you will be in a better position when the market turns as a person who buys in the turned market.

In a market where prices are dropping 20%+ a year, it pays to wait. If I can buy the same house next year for 20% less than I can buy it today, I am better off waiting to buy it until next year.

Right now banks are foreclosing on homes faster than they can sell them. In such a market is it rational to hold off buying.

Foreclosed homes rule real estate market - Sacramento Business Journal:

[divetatoo]

How do you know it will continue to drop 20%? In what market? At what price point? Is this based on if current events continue? What if they don't? What if that one house isn't available? What if the cost of the home isn't the issue, but the cost of the loan is the issue? If you have the ability to purchase now in this climate, again... why wouldn't you? What is rational is to take advantage of an opportunity while it is available, as long as it makes sense and is affordable to you. We know what is going on now, we REALLY don't have a crystal ball telling us what the future holds.

[edwardius]

Originally Posted by divetatoo

How do you know it will continue to drop 20%? In what market? At what price point? Is this based on if current events continue? What if they don't? What if that one house isn't available? What if the cost of the home isn't the issue, but the cost of the loan is the issue? If you have the ability to purchase now in this climate, again... why wouldn't you? What is rational is to take advantage of an opportunity while it is available, as long as it makes sense and is affordable to you. We know what is going on now, we REALLY don't have a crystal ball telling us what the future holds.

The federal government as part of its duties to regulate Freddie Mac and Fannie Mae, puts together an index of housing price levels. You can read about the index here.

Office of Federal Housing Enterprise Oversight

Attached here is the OFHEO HPI index information for the Sacramento region since the feds started tracking this data for the Sacramento region in 1976.

Central California OFHEO Home Price Appreciation Tracker

In each of the last three reporting periods, the Sacramento region has broken and set new records for how much price levels can drop in a single reporting period.

Look back at the history of prices levels in the region. What you will see is that price levels have momentum. That upward price movements are clumped together and that downward price movments are also clumped together.

It is both the magnitude of how much prices are dropping and that things keep getting worse that makes me think that we are not near bottom right now.

The other thing you will notice is on an inflation adjusted basis, housing price levels in the Sacramento region still are not cheap. On an inflation adjusted basis, housing prices were much cheaper in Sacramento between 1994 and 2000 or before 1989.

When people buy real estate they are highly leveraged. The fastest way to lose a lot of money in a short period of time is to use a lot of leverage to buy an asset that is rapidly declining in value.

We may not have a crystal ball, but that doesn't mean that we are absolved from critical thinking.

Given the fact that we know that housing prices have momentum and we know that prices are dropping right now and we know that people buy real estate use lots of leverage, buying right now is asinine.

Especially when we know that the largest employer in the region has a 27 billion dollar plus budget deficit and will need to reduce that budget deficit by cutting payroll locally. Especially when we know that lending standards are tightening and that is removing potential bidders from the market.

If you want me to believe that prices are near bottom give me some evidence to back up why that might be the case. Show me that unemployment in the region is now falling instead of growing like it is right now. Show me the new employers that are expanding in the region. Right now the major private sector employers like Intel and HP are shrinking locally. Show me that State has fixed its budget problem and is going to start expanding its payroll again. Show me that local banks have sold off their inventory of foreclosures, right now the Sacramento Business Journal is reporting that banks are adding foreclosed homes to there backlog faster than they can sell them.

Give me some reason for why you believe that prices have now fallen enough where they are going to start rising again. When people are losing or think they might lose there jobs, they aren't in the market for a new home. Tell me why you believe that prices are now suddenly going to reverse direction and start rising again.

[NewToCA]

Interesting link there, thanks.

In looking at the prices in many of the markets though, I don't see how the prices dive much lower. For example, a quick scan of listed homes in Elk Grove discloses that 160 homes are currently for sale, that have a minimum of 3 bedrooms, 2 baths, 2 car garage, at least 2,000 square feet and a maximum price of $275K. Likewise, using this same criteria shows Lincoln with 40 homes currently listed and Sacramento with 215. The question really becomes at what point is it no longer worth selling the home, and just deferring your sale (if you can).