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I can't believe I am saying this but I agree with scone on this one.
Awwwww... I'm feeling the love! {{{{{ Silverfall }}}}
P.S. To OP: it seems to me, if this were a "normal" recession and a "normal" market correction, it would be a bit easier to get a feeling for the market stabilization point. But in this market, it seems to me, all bets are off. If we are looking at a once-in-a-hundred-years historic shift, there's really no way of knowing what can happen, because we have never been here before. So if this thing turns out to be say, bigger than the Great Depression, who knows where the bottom will be? I don't think anyone can say. I'm not even sure we have the math available to do a good risk analysis. And that scares me.
Good comments from scone and silverfall. All the generic advice in the world doesn't matter as much as YOUR situation and local market conditions. We can talk about historical trends and items, but if you are in an area with high foreclosures and home prices that are still relatively unaffordable then it will affect your outcome.
Sounds tempting... but I'm not sure if it's worth buying or not...
I think it'll depend on what you see the growth potential is of your area. If you think more people are moving into the area, and that there is economic and population growth in the duration/future that you'll be living there... than short term dips should be fine. It's where you see your city/neighborhood going when you "think" you'll sell that is most important.
If rents = PITI now, and you see things growing in the future... than I think it'll be alright to buy. Otherwise, even if rents = PITI now, and the town turns into a ghost town... then... you know what happens...
I don't know too much about the central valleys.. except that it's very agrarian.... and since the US should theoretically provide more food to the world as the world grows... then farmers should make more money in the future?? Also, supposively grocers such as Walmart are now insourcing (buying produce from within the State instead of purchasing abroad)... would that make agrarian areas more rich??
Awwwww... I'm feeling the love! {{{{{ Silverfall }}}}
P.S. To OP: it seems to me, if this were a "normal" recession and a "normal" market correction, it would be a bit easier to get a feeling for the market stabilization point. But in this market, it seems to me, all bets are off. If we are looking at a once-in-a-hundred-years historic shift, there's really no way of knowing what can happen, because we have never been here before. So if this thing turns out to be say, bigger than the Great Depression, who knows where the bottom will be? I don't think anyone can say. I'm not even sure we have the math available to do a good risk analysis. And that scares me.
We always have the math :P... and most ecnomists... even the most dire ones say we won't go into a depression. Most bubble and bottom predictors also agree that it's easier to predict a bottom than a top because a boom involves a lot of speculative and emotional things... while a bottom... is basically based on affordability.
"Trying to predict peak prices during a mania is like predicting the future behavior of an insane person... In a way, we are metaphorically returning to a natural state of things".
Predicting the Housing Future: Los Angeles and Orange Counties. Using the Case-Shiller Index to Find a Bottom. | money blog (http://www.inmoneytoday.com/2008/06/22/predicting-the-housing-future-los-angeles-and-orange-counties-using-the-case-shiller-index-to-find-a-bottom/ - broken link)
So, once affordability is in reach.. we'd reach a bottom. Thousands of ecnomists are monitoring affordability as we speak
Ok ... we've all heard the advice. Wait for prices to drop since they will drop further. Here's my question ...
If you can get a property that you like for the same amount of rent you're paying now ... is that the time to buy?
Here's my situation: market rent for houses in my area is about $1500, give or take. Long story short, we ended up paying $1800 for a larger house because this was the only landlord we could convince to take our three dogs. And, we didn't mind paying more since this landlord was willing to give us month to month flexibility on our lease without a one year commitment which, of course, we liked because we do want to buy eventually.
A foreclosure is coming on the market that we like. We're thinking about offering $220K for it ... even though recent comps in that same price range are for smaller properties. They may ask as much as $300K for this one.
We're willing to walk away since anything more than $220K would exceed what we're paying in rent now. However, if by chance they accept the offer ... are we making a mistake? Could prices drop further? At what point do you buy?
I would say if your PITI+HOA+maintainence = rent for an equivalent property then it is definitely a good time to buy
I would buy even if the PITI+HOA+Maintainence is upto 10% higher. Right now here in South OC it is 100% higher.
Watch out for foreclosures though, if you can't inspect it then who knows what damages you may find later. It may become your worst nightmare. For this risk make sure you get a HUGE discount, something like 20% for risk + 20% for potential damages.
Your method is a good start, but there are other things to consider. Obviously, the value of the mortgage deduction, the chance that you might have to move before you hit "break-even," and, as you say, the chance that prices will fall further. IIWY I'd want to know how far prices have already fallen, and whether they are starting to stabilize. For myself I wouldn't want to buy in an area with massive numbers of foreclosures, abandoned properties, etc. Prices might be very low indeed in an area like that, but the neighborhood could go downhill fast.
The mortgage deduction would be about $2K a year (above and beyond the standard deduction). Not much but it would probably help us itemize other deductions. However, maintenance costs would probably wipe that out so ... it would be a wash.
Prices in this area have fallen anywhere from 40-60 percent. We're already renting in this neighborhood so we have a pretty good feel for the place. It definitely has it's share of foreclosures but it's not massive ... it still looks pretty good. Lots of law enforcement lives here so I'm not worried about crime and the neighborhood going downhill ... which is one of the reasons I like this area so much.
I track notices of default (NOD's) but it's been hard to predict what's going to happen to some of these properties beyond the ones that have already been abandoned. For example, there was an NOD on the place I'm renting now but I was able to confirm that the landlord renegotiated the loan. Some houses have NOD's but look really nice so ... maybe those owners will negotiate deals as well.
Basically your guess is as good as mine on where the market is headed.
.... and most ecnomists... even the most dire ones say we won't go into a depression....
So, once affordability is in reach.. we'd reach a bottom. Thousands of ecnomists are monitoring affordability as we speak
-chuck22b
Are these the same economists who failed to predict the pickle we're in now? I really do --honestly, no snark-- want to be reassured, but I can't be. Go over to the NYT profile on Roubini, esp., the part about consensus behavior of economists.... they make the koolaid, they drank it, they're still drinking it. So... I want to feel good, but not if I have to do the drug, see.
OTOH, maybe I'm just picking the wrong risk. if I choose the Matrix, I get to eat steak.
Are these the same economists who failed to predict the pickle we're in now? Actually, no, they're the ones that predicted we were going to get into this pickle I really do --honestly, no snark-- want to be reassured, but I can't be. Go over to the NYT profile on Roubini, esp., the part about consensus behavior of economists.... they make the koolaid, they drank it, they're still drinking it. So... I want to feel good, but not if I have to do the drug, see.
OTOH, maybe I'm just picking the wrong risk. if I choose the Matrix, I get to eat steak.
My theory is that once affordability is reached, that it'll be difficult to go way bellow affodabiliy levels in Good areas. This is because if there are profits to be made (since things are so affordable), investors would jump in to prop prices back up.
I emphasize good areas because in bad areas or places way out in the boonies... there is less potential growth therefore more risk.
So... that is why I think when affordability is reached in good areas (areas that have potential future growth)... it'll be difficult for place to go way bellow affordability levels. It'd be nice if prices can go super low... but investors tend to hawk anything/anywhere that has better than average returns.
-chuck22b
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Dr. Doom and EOTWAWKI
