WatchThere seem to be a lot of people with some sort of interest in buying property in this forum (as opposed to passively commenting just for kicks). Many of you folks seem to be "waiting" for something along the lines of a "price bottom" or "affordability" or something along those lines (I am in this group with you). One common statement in here is that, "buyers are waiting and saving" while they wait for this sign-from-above to buy. So, I am curious to see, of all the folks that wish to buy a property and consider themselves to be "waiting," how many are actually in a position to buy if next week if it were when this "sign" appears (and this means that said sign indicates that current prices ARE the bottom)?
Here are the criteria for "who has cash on the sidelines."
- You have enough cash right NOW to put 20% down...
- ...on a SINGLE FAMILY HOME...
- ...in an area that you are coveting / want to live in long-term...
- ...PLUS >6 months of living expenses in cash.
So no, you don't count if you "have enough cash to put 20% down when prices drop 50%."
We all love to rag on the 3.5% FHA loans and other low-down deals, so the bar is set at a level that most people consider to be the minimum threshold for "responsible" borrowing/buying.
This is not intended to be some sort of financial pissing-match or excuse to show-boat. I am genuinely curious to see how many of the RE-savvy folks here are actually positioned to move when the time comes. We all rage about not wanting to participate in this market, but it seems sort of silly if you have no idea how many people can ACTUALLY participate in it.
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And yes, my fiancee and I meet the above criteria. She has been saving for 7 years and I for 4 (basically since we graduated from college). We don't want to see all of our saved cash go up in smoke if/when prices adjust around here, so we wait (and we have a wedding to deal with; there is no way we are going to try to deal with a RE purchase and that in the same year). Having the cash sit in savings accounts is shitty, too, since its value is smouldering away...damned if we do, damned if we don't!
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I have the cash, but I have no expectation of buying anytime soon (and no idea what a "bottom sign" would be - that seems just as fruitless to me as does trying to buy a stock at the "bottom").
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i can. i'll buy when 1) prices stop falling 2) they are flat or increasing for a year or three 3) real estate is back to "normal"; no government nonsense propping up markets, foreclosures are at normal level, employment is healthy, debt-to-income are at normal levels, interest rates are at more normal levels, etc.
in other words i'll buy when i'm convinced the down trend in prices is over, even if it means i miss the bottom and prices tick up. they're still dropping and i expect better (read: lower) prices next year.
having said that i'm convinced we(sideline buyers) are in the very tiny minority.
none of my friends waited years for prices to decline. they all bought with a year or two of looking and generally regret their decision. i can extrapolate this anecdote and conclude most buyers do not have the patience, or work ethic to convince themselves to wait years before buying. in other words, "huge pent up demand", or "buyers waiting on the sidelines" is mostly a myth. our mtv "i-want-it-now" generation simply doesn't have the patience to wait on the sidelines for 5 to 10 years to time their purchase.
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I can count myself in this camp. I have the cash to buy the whole thing without using the bank. But I would not buy at this point, the down trend is not over yet, I think the next big leg down is coming.
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Our household is one of these for a rental, but it doesn't pencil out with all things considered, compared to the return on the dividend paying stocks.
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The buyers and money on the side lines was proven wrong. Heard too many times, BA prices will never fall because demand outpaces supply and all the other wrong reason.
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thomas.wong1986 says
Are you seriously claiming that BA housing prices have not fallen?
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Santa Cruz, CA
I actually have money but it's also not exactly "on the sidelines". Some people may seem smug because we saw the California scheme for what it was, a bubble ready to pop.
I still remember my grandmother who had always owned a business and had always lived in awesome houses and always rented. It was she who lent my father the money to buy the lot on the hill with the ocean view on Martha's Vineyard in 1962. She had the cash, he already had a mortgage somewhere else to pay.
Interesting that today my father owns a huge house but he wants to go to Florida and rent a little apartment where the winters are not cold. The age we care about a nice house seems to be in the middle somewhere.
I have been to some nice places in the world, and believe me, there is usually some place for rent there at any given time.
Rents in the center of nice cities of course are high, but owning is expensive also there.
As someone else wrote, you either rent the place or rent the money to buy it.
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Beverly Hills, CA
You have enough cash right NOW to put 20% down...
- ...on a SINGLE FAMILY HOME...
- ...in an area that you are coveting / want to live in long-term...
- ...PLUS >6 months of living expenses in cash.
Yes, we have enough for 100% cash, but our investments are consistently paying more than the cost of a mortgage. We are pre-approved at 3.125 % if the appraiser approves.
Yes looking for a single family HOUSE
We do not "covet" any area. The local gang bang ghettos are still too expensive.
Yes, we want long term and have been watching and waiting as Realtors LIE, at least 8 years now. PATIENTLY watching the carnage as Realtors have told us ALL along NOW IS THE BEST TIME TO BUY. However, most people in my area who bought in the past 8 years because they believed these snakes are upside down on CONVENTIONAL loans. This is because house prices ARE STILL TOO HIGH. When we see a "possible", Realtors scoop them up so fast that they won't even show them to us. Our biggest "competitors" are LISTING Realtors who grab the good stuff and leave the crap for the suckers. The other "competitors" are idiots who never saved a nickle in their lives yet "qualify" for "Homepath" and other GSE and banker scams designed to keep house prices high. We actively look for a house, and dump about one Realtor per week. If they want my money they better learn that LYING and smiling won't work with me.
Oh yes....lets see now...we can live for maybe in excess of TEN years with NO income. We are praying to the mortgage "God" to increase mortgage interest rates to 9% APR to shake out the weak buyers who do not discriminate by paying TOO much for junk ...and keeping house prices in the stratosphere.
If a crap box cost $ 1 per sq ft to build in 1920, why should the same crap box with 60 year old asphalt shingle roof and 10,000 rusty nails and five million termites in a GANG area be worth $250/ per square foot ?? Homies in da hood are gonna be poppin they caps and riding da ghost with the Hyphy all night YES, the last crap box we saw was asking Disneyland prices.
The house prices have averaged 35% of the peak and they must come down AN ADDITIONAL 50%. We have the cash, but don't want to throw it at a crap box filled with termites in gangtown.
The non-gang areas will have houses with DOM in excess of 500 days and the banksters still won't drop the prices or they take them "off market" . Yes I "can" pay the money they want but it's like paying $50,000 for an old used Yugo with no tires. Who wants that mess? So we watch and laugh and listen to liars. We are still optimistic that some day these criminals will just get a heart attack and die. In their graves they will be singing the songs HOUSE PRICES ALWAYS INCREASE la di dah and THIS is the BEST time to buy.
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Beverly Hills, CA
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oddhack says
Yes, they have fallen. And will continue to fall back to long term trend.
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Beverly Hills, CA
This piece of rubbish was listed at $720,000 in 2006 in a lousy area. It sold after over 800 DOM the last listing for $250k. Here is what the MLS pic looks like for the same place.
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Beverly Hills, CA
Recent MLS photo of same "fixer"
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cab says
Actually we do have a rear view mirror. Prior history of price inflation in CA which corrected over a 7-10 year period. Robert Shiller wrote about residential RE prices in his 2nd edition of Irrational Exhuberance. Its a good source of information.
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cab says
Dont know.. has the Haight changed all that much. Will have to check as I visit Ameba Records next time.
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Beverly Hills, CA
Note that many of the trees have fallen down from the termite infestation in the area. This house was owned by a person who ran a part time tractor repair operation in the driveway. But some of the bushes in the photo are real, and many of the flowers are photoshopped in...the MLS says...what property could look like with "clean up". " A blank canvas for your dreams..." Yes this is real estate in 2011. The Broker is an ex USED tire salesman. Ahhh "professionalism". Hello NAR?
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cab says
Too bad some are chasing or should say "Occupying" Wall Street or San Francisco or Where Ever ... calling the end of crony Bankers to really notice the doings of Real Estate Agents.
Resistant.. gosh I wonder why! Surely cant be price fixing!
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Any Realtor® will tell you if he or she is not busy eating his or her mother's kidneys that any number of Saudi princes are poised to throw a million+ at 3/2 in Stockton and if you're not in now you and your progeny are doomed to homelessness and permanent disenfranchisement.
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bmwman - I love the post. It more directly gets at what I was asking in my previous post How much is enough?
I'm almost there. Given my projection for the additional cost of utilities for a house (heats not cheap here in the northeast, and Its covered in my rent right now) I'd have 20% down and a 5 month emergency fund. If all goes according to Hoyle I should have the remaining cash by end of January 2012.
cab - I agree with most of what your saying.
My personal position is when the right house comes along - at the right price, I'll buy it. Until then I'm saving $$$ at such a good clip it doesn't make sense to "settle" for something that won't meet my projected long terms needs (sufficient room to raise 3+ kids, ability to be used to potentially caring for older parents / grandparents 10 + years from now, etc.)
Two things that strike me.
1) There can't be that many people with 100k+ in the bank.
2) Prices are holding steady in my area, but I can't see them going on a rapid upswing (5+% YOY appreciation) any time soon.
So I'm not looking for the bottom at this point - I'm just waiting until I find the right place at a price I can afford. Sometimes it feels as if I am tilting at windmills.
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Not "when" but "where" on the chart is the bottom. Where prices fall around the long term inflation line.. its a good time to buy in Florida.
http://www.housingbubblebust.com/OFHEO/Major/Florida.html
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cab says
All I can say, pulling out the RE street magazines back in 95-96, nice condos 2/2 near the SF MOMO were going for 180K, converted lofts near Embarcadaro were as low as $150K.. typical incomes were around 50-60K so prices were fairly close to being supported by income. Somethings gonna give.
Sorry, but I dont have much knowledge/Info regarding East Bay.
Certainly much cheaper back before the insanity. DQnews does provide customized data for a fee.
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Many were certainly not saving for retirement...
Couple warning signs I came across ...
http://www.msnbc.msn.com/id/12497473/39467114
NASD warns against cashing out of 401(k)s
Taking money out of account can have major impact on retirement savings
The National Association of Securities Dealers, the brokerage industry's self-policing organization, issued an investor alert Wednesday regarding the short- and long-term consequences of withdrawing money from 401(k) plans before the investor turns 59 1/2.
The NASD cited a recent study showing that 45 percent of employees cash out their 401(k) plans when they change jobs. It is better to leave the money in the former employer's plan, roll it over to the new employer's plan if possible or transfer it into an Individual Retirement Account, the group says
Borrowing on home to buy stocks unwise (2002)
http://seattletimes.nwsource.com/html/businesstechnology/2002130729_pfrefi26.html
Here's an enticing strategy: Borrow money at today's low interest rates, then invest it at a higher return, pocketing the difference. Sound like a no-sweat road to riches?
By Jeff Brown
Knight Ridder Newspapers
Here's an enticing strategy: Borrow money at today's low interest rates, then invest it at a higher return, pocketing the difference.
Sound like a no-sweat road to riches? Sure. And growing numbers of Americans are being seduced by this siren song of easy money, borrowing against their homes to buy stocks, apparently oblivious to the steep risks.
So alarming is the trend that the National Association of Securities Dealers (NASD) has warned its members they can run afoul of brokerage-industry regulations by urging the strategy on small investors.
The maneuver involves taking cash, or "equity," out of a home by refinancing with a new mortgage larger than the amount owed on the old one, or by taking a home-equity loan, using the property as collateral.
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San Francisco, CA
Malkovich's website
investor90 says
Great post! Love it. Can relate.
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Thousand Oaks, CA
Here are the criteria for "who has cash on the sidelines."
- You have enough cash right NOW to put 20% down...Yeah, thats right
- ...on a SINGLE FAMILY HOME...Uh huh
- ...in an area that you are coveting / want to live in long-term...been here all mi life
- ...PLUS >6 months of living expenses in cash.Easy
there are currently only 8 listings in my price range here in my zip-code.
2 of them have one less bedroom than I want.
1 is under contract (home path)
2 are in negotiations (part of an 18 property portafolio)
1 is back-up/contingent
1 is a major fixer and requires a cash buyer
And the last one would work but the lot is small and I have too many vehicles
Since September I have submitted 3 offers on properties but so far no cigar
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La Mesa, CA
I meet this criteria but I don't personally know or know of anybody else who does. I saved 25K a year for 4 years and from what I gather, most people I know either live paycheck to paycheck, can't let money burn a hole in their pocket or are already homeowners from a long time past (all the recent ones defaulted).
Still managed to get outbid on most decent houses in my hood.
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Berkley, MI
I fit in with the OP's 3 criteria. I'm 29 years old, have an 800 FICO and no debt. Our target price is $80K-$90K or less in our desired area (metro-Detroit). There are many houses for that price.
But it's not so much the house price that's holding me back. I personally think they've leveled off or prices are going slightly higher in my area. What's holding me back is job security and uncertainty. My wife is disabled and doesn't work so we don't have much "diversity" in terms of income. If I lost my job, the only backstop is going to be our savings and my ability to move wherever to find work.
We're actually leasing a house now in our desired area for $775/mo. This is a pretty good deal considering similar advertised house rentals are at least $900+. But we pay the entire year's lease upfront, which makes the landlord happy.
All the online calculators (including Patrick's) say it's best to buy in my situation. It's tough shelling out over $9K to the landlord knowing that that money could have been used for half of a downpayment. But being tied down to a building and pouring half my cash into it is hard to quantify. I guess I think of renting as "mobility insurance".
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I actually had the 20% ready to put down,
but for what I finally bought for, and the interest I got.
The difference in the monthly payment with the 20% vs going with the min 3.5% was not that big of a difference.
So we decided to keep that 16.5% and use it for a cushion fund.
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Premium
don't forget closing costs. not sure what its like where you guys / girl are, but out this way thy can add another 8,000 to 12,000 to the cost of buying depending on the house.
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The GOP says
Which you promptly spent on weed.
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I meet the criteria and can only partially explain my gut feeling:
For the last thirty-plus years americans have had their heads in the feed bag. The political/economic leadership all the way down to the consumer/voter, have rationalized their unaccountable, self centered and highly materialistic lives with a misreading of capitalist theories and blind loyalty to the rants of neo-liberal socio-paths in the FIRE sector.
This time has come to an end. We are apparently just now entering a time of retribution and hopefully redemption. I look forward to buying a home in a society which has reclaimed a sense of virtue and moral accountability.
Currently we have not.
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My cash is not on the sidelines, the bank has already lent it out to some speculator, or they are speculating with it themselves.
Glad to be of assistance. NOT!
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Monterey, CA
We're able to buy in cash - have no desire for a mortgage. I don't understand the logic of paying 3x what an item is worth.
We currently rent because:
1) Prices are still falling
2) Homes are not in line with 3x income levels
3) We're not sure where we'll be living long term
4) Too much economic garbage coming down the pipeline
Buy gold. Plant potatoes. Live debt free.
Debt is slavery.
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joshuatrio says
It's called the time value of money.
http://en.wikipedia.org/wiki/Time_value_of_money
You're not actually paying 3X what an item is worth because the value of future money is not the same as the value of money today.
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Boca Raton, FL
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Fuck 20% down. I'd buy in 100% cash today if the prices were reasonable. I've got $200k+ tucked away in non-retirement, liquid accounts and no debt since mid-1998. Just before the bubble started, that would be enough to buy a decent, brand new, 3 bed / 2 bath, 2000 sq.ft. single family detached, middle class house on a 1/3rd acre lot in south Florida.
I see no reason to pay more for a house today. Given wage depression, consumer withdraw, and the bubble burst, I should pay less for that house or pay the same amount for a better house.
I'm certainly in position to move when the market is right, but I'm in no hurry. Worst case scenario, I'll say fuck it to south Florida and move somewhere cheaper in the Bahamas. With the direction the software industry is taking, it may be inevitable that all software developers just have to directly market their own software rather than working for corporations, in which case, I might as well be living in the Bahamas.
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Tarzana, CA
In my opinion, I think most if not all of the people who read this blog have something called 'intelligence'.
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Thousand Oaks, CA
Nomograph,
That weed comment made me LOL
Thanks
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Los Angeles, CA
Seriously, owning a home might be a 'less than average investment' for most americans for the next 20 years. I'm basing this on the prolonged drag out in the crash - prices should have crashed way way lower than they did. Sooo 20 years of 'appreciation' is already in the bag when you buy in Coastal US now - thus no future appreciation.
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Boca Raton, FL
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PockyClipsNow says
Home appreciate will come back when the last Baby Boomer has died of old age and the Millennials have paid off their college debt. So we're talking 2050. Until then, expect no appreciation in real dollars for homes.
For the current generation of buyers, a house is only going to be a place to live in.
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Laguna Beach, CA
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I fit all the criteria, and I'll probably pull the trigger next year.
I'm just a little concerned about all the government props, and politics that is going to occur next year. Is this going to jiggle prices either way? I'm not sure, but I know for a fact that places I'm looking at are at rental parity, if that means anything.
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Oakland, CA
The GOP says
What amount of PMI were you hit with? I hear that 1.15% is the norm...
ie: on a $100,000 loan, that would be ~$96/mo
I am in the same boat right now where I am eligible to buy with FHA and split 50/50 on whether I want to buy with 20% down or instead buy with 3.5% down and use the remaining down payment for another property shortly after
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Oakland, CA
Hysteresis says
I'm split in the following categories:
#1 - Your position
#2 - Sadly, timing has a huge influence on our affluence. Life is short and many people aren't willing to wait on the sidelines for an ambiguous definition of the right time to buy. Of course renting is always an option obviously. However, prices have dropped significantly over the past few years and interest rates are at historical lows. That's enough for a lot of people to move foward...
#3 - Patrick actually really turned me on to viewing home value in terms of annual rent:price ratio. Although there is a strong correlation between this ratio and the price of the home (higher class areas with more expensive homes generally have a lower ratio while lower class areas with cheaper homes generally have a higher ratio). Any home I buy, I'd like to be sure I can rent it out in the ballpark of the monthly mortgage amount to mitigate risk.