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Thanks, I think thats a good way to look at it. I don't my 03 level offer is a "lowball" but that shows you the dellusional world sellers and RE operate in. If one believes that there will be a reversion to the mean in RE prices, I will be underwater for a while. In fact, having watched financial markets most my life...if anything, RE prices will overshoot on the way down. Oh and that's in a normal cycle. Our banking system is currently insolvent.
Circa 2003 pricing probably isn't as low as it will go before this mess is over (and you probably know this), but it's not too bad. The real key is that you have the 20% down and you have several years of living expenses (including mortgage expenses) saved up. You're rock solid from a financial perspective, so you have to look at this question as:
What premium is it worth to me to pull the trigger and buy this house now so that we'll know where we'll be for the next X years?
There's nothing wrong with paying for that premium, so long as you do it knowingly and willingly, and are financially solid. You sound like you're well-informed, educated about the housing market, and willing and able to pay a premium to get into a house now.
I don't think you're making a mistake.
I would just caution you to draw a line in the sand and not increase your price very much beyond your current offer. Putting an offer on a house and starting to mentally picture you and your family in that house can mess with your reasoning, and before you know it you might be counter-offering for more than you would if you were to do some cold, hard calculations.
It's normal to have a moment of doubt when making an offer like this, but it's also normal to get caught up in negotiations and offer more than you should. Just be aware of both of those.
I hope you get the house at that price; but be prepared to for a counter-offer that's too high, and be prepared to walk away. There are plenty of fish in the sea.
Circa 2003 pricing probably isn't as low as it will go before this mess is over (and you probably know this), but it's not too bad. The real key is that you have the 20% down and you have several years of living expenses (including mortgage expenses) saved up. You're rock solid from a financial perspective, so you have to look at this question as:
What premium is it worth to me to pull the trigger and buy this house now so that we'll know where we'll be for the next X years?
There's nothing wrong with paying for that premium, so long as you do it knowingly and willingly, and are financially solid. You sound like you're well-informed, educated about the housing market, and willing and able to pay a premium to get into a house now.
I don't think you're making a mistake.
I would just caution you to draw a line in the sand and not increase your price very much beyond your current offer. Putting an offer on a house and starting to mentally picture you and your family in that house can mess with your reasoning, and before you know it you might be counter-offering for more than you would if you were to do some cold, hard calculations.
It's normal to have a moment of doubt when making an offer like this, but it's also normal to get caught up in negotiations and offer more than you should. Just be aware of both of those.
I hope you get the house at that price; but be prepared to for a counter-offer that's too high, and be prepared to walk away. There are plenty of fish in the sea.
Good luck!
Thanks for the sound advice!
We are keeping this a strict financial transaction and not allowing emotions to cloud the picture.
I am battle tested, and I will stick to my guns. I have some leeway to go up and still have the monthly payment (mortgage + prop tax) be close to the cost of renting this property after taking into consideration the tax benefits of ownership. (I built a nice spreadsheet to run the #'s for this). The wife and I have agreed a max price and will stick to it.
We have some tactics/bargaining power besides upping the price.
- Or offer today is timed to coincide with the Case Shiller numbers release.
- The house is vacant and we can close immediately (no house for us to sell)
- Our mortgage commitment has already been secured (these sellers already had a previous offer that fell through due to buyer failure to complete financing.)
If it's not this one, we'll regroup and search for the next one .
Yep, any lowballs we make we'll try to get to 2000/2001 levels. We're in no hurry to buy, and this drop may be reached by later this year.
Agreed. The longer you can wait the more prices will get in line with fundamentals. As in any market, it will be hard to call the bottom but when valuations are more in line with the potential revenue streams of properties, you could at least say you are getting a fair deal.
Remember the RE agent battle cry, "buy now or you will forever be priced out!"...well, welcome to opposite world.
Ok, so I want to buy now. I know the longer I wait the better the pricing...but there is value to having your own home and being able to change things as your heart desires. I have already benefited by > $100k by renting vs. purchasing in 2005.
I put an offer in today on a home in Holmdel. The offer is at 69% of what the previous owner paid for the home in 6/05 and is circa 03 pricing. I am sure it won't be accepted. I am willing to go up slightly.
Am I making a mistake?
I don't think you are making a mistake. Feel free to put in any offer that you feel is best for YOU and don't get hung up on the seller's expectations. Supply is plentiful for now and the forseeable future as sellers are sitting at unrealistic price points. They have 2 choices: they HAVE to sell and take a lower price or they choose to change their future life plans and take their homes off the market and try and ride out this mess, how ever long it may last (hint a long time).
And of course someone may come in a put a higher bid and get the home. It's expected. They may think it's "on sale" - based on the bubble prices of 2005-2007. But then again if we took a look at the stock market - not too long ago the DOW was above 14,000. It went down to 13,000, people purchased thinking it was a great deal - it was "on sale", it went to 12,000, 10,000, 8,000 and yesterday hit 7114, the lowest in 12 YEARS. At all these price points people purchased, thinking it would not go lower and lower. I bet that guy who purchased at 13,000, thinking it was a great deal, is kicking himself right now.
The funny thing is, as everyone says, you can't time the bottom, but you can surely see that NJ and surrounding area home prices are still out of whack, based on salary/income figures and for the simple fact that we are back to normal mortgage underwriting standards (2x-3x max yearly income, 20% down, give or take a few different factors).
I completely understand what you said about the value of owning your own home and changing things to your hearts desire. I am in the same boat. But at what expense would that pleasure have come? I RENT (for the last 6 years) - a shock it is and something that "homeowners" laugh at. But who gets the last laugh when the monthly mortgage+tax payment on the same exact type of unit I am in, is 2x the actual rent I pay. Even after being able to deduct the interest and whatever else on your taxes, the renter is still coming out way ahead. And what some homeowners fail to realize is all they are doing is "renting" from the bank when you have zero equity or, gasp, negative equity in the home.
Is it Better To Buy Or Rent?
Play around with the above calculator. And it may not even be that accurate since the slider for "annual home appreciation" only goes to -10%, a value we may just come to find out that is just the tip of the iceberg.
But don't worry, you said you benefited by > $100k by renting vs. purchasing in 2005. You will be rewarded with your patience and responsibility, eventually, unlike those who irresponsibly chose to HELOC the crap out their homes just to buy entry level 3 series his and her's BMW's and think our president's "handout" will save them.
Everyone says a home should be a place to live, not an investment. True. Well tell that to clueless homeowners who won't budge from a price that is double to triple or MORE what they paid only 10+ years ago. A 100%-200%+ return. Why wouldn't you take even a 50% return? That still is amazing, since those same people were so happy when their financial advisers told them they can expect their little 401k's to earn 8%-10% a year on average. What's the difference? They are still blinded by the fantasy of the last few years with a massive, artificial return on their INVESTMENT, errr, I mean home, the place you live. Too late now, that ship has sailed. You could choose to keep having your home sit, unsold, month after month, on the various listing services with the advice of your real estate professional telling you to lower it a whopping 1% a month or you can get it sold within a day with the right price - and still make a nice return on your money, since that's all its about right? (this doesn't apply to the speculative home buyers of 2005-2007, sorry you got YEARS to wait to even attempt a shot of breaking even) But most of you will still live in denial of dropping home values and watch as that 14,000 goes to 13,000, 12,000, 10,000, 8,000 and gasp 7114, almost half off
Oh and I can't wait for the ones who say the stock market and home values have nothing to do with each other. Do you really think most people who were saving up for years for a home actually put their money into a safe savings account? Nah, it was in the market one way or another.
Excellent post. Thanks! Two things you stated hit home with me :
1- Renting, very frowned upon, especially in more well to do towns. However, my family is better off for it.
2 -Only my 401k savings went into the market as I have 30+ years to retirement. And I only contributed the amount necessary to extract the maximum contribution from my employer.
All my savings went into CDs/Online Savings accounts. 4% on average over time beats -50% by a landslide. Many co-workers thought I was crazy to advocate keeping money in laddered CDs for any money needed within 10 years. (Even then my advice wasn't conservative enough as we have rolled the clock back 12 years on stocks).
can't say any more than what's been posted, but please keep us posted! Good luck! Holmdel's a great town.
Thanks! If this deal doesn't happen I am keeping my Long Valley options open
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and I will stick to my guns. I have some leeway to go up and still have the monthly payment (mortgage + prop tax) be close to the cost of renting this property after taking into consideration the tax benefits of ownership. (I built a nice spreadsheet to run the #'s for this). The wife and I have agreed a max price and will stick to it.
