Its funny to see the same mentality that got many buyers in to the sub-prime mess also working against those trying to capitalize on it. If I’m a real estate agent I’m doing everything in my power to get my buyer to ses the market in a broadened context. I think many of these buyers now see 2005 -2008 and the amount of instability as the norm, and not as it really is.

The ever accelerating 21% drop from the peak of 2005 has made many a buyer skittish about just jumping in and paying top dollar for something. Especially when we are looking at another 2-3 years of neg-am adjustments to becoming amortizing loans. (see CalculatedRisk’s chart on that).

When real estate is appreciating 20% a year, it really doesn’t matter what deal you get. When real estate prices are dropping 10+% a year, it really DOES matter that you get a place that is a “deal”. Otherwise, you will be underwater just that much faster. I think everyone’s plan is to get something that is 20% below the market now (which is very doable considering the huge price spread out there) and then cross their fingers and pray that the market doesn’t sink more than another 20%. As soon as you see the Case-Shiller property decline curve start to flatten out, you’ll see a lot more people who aren’t so concerned with getting a “deal”.

Well, if I’m going to be paying every month twice what it costs to rent the same house, I’d be picky too. It better be damn near my dream house to double my monthly nut as well as shoulder future declines.

quote:
“But, when these buyers look back at our current season, next year and in years to come, I firmly believe they are going to be pleased with the outcome.”

Someone meaner than me, and with more free time, should insert all these bottom calling quotes from this blog on a Case Shiller home price graph.

First of all, I am blown away by the restraint you guys are showing. Very decent and mature (even though I DID beg).

You know, Jakob (and Sven), it is just my opinion, and that and $20 will get you a gallon of gas. We are not always right here, but we aren’t usually really, really wrong. We saw this coming long ago (even if not to this extent, but then we kind of got blindsided by the whole mortgage mess).

Jakob – I did not say we are at the bottom yet, but just that I am seeing signs of life and optimism. We have repeatedly said we anticipate being well into 2009 before we see prices stabilizing. I don’t agree with Sven, however, that we have an additional 20% decline heading our way — I think 10% is more like it and, for certain areas, that may be an overstatement.

But you could be right, and I could be wrong. The only thing I know for sure is that one of us will be reminding the other of this conversation in a year or two.

I’m certainly bearish, but I do think that we are on the right path to stability. However, we still have a LONG way to go. It’s not the middle of the 7th, it’s the bottom of the 4th in my opinion.

While we are finally beginning to wade through the sub-prime mess, we still have Alt-A, option ARMs, and HELOCs (oh my!) to deal with. Coupled with tightening debt markets, a negative savings rate for the average American, and highly leveraged toys (how is it that people that make 1/3 what I do drive a car 3 times more expensive than mine?), I believe that we will be several years more before aggregate prices begin to head north.

I’m no professional, but I don’t think one needs to be to see the handwriting on the wall. One need only look to Japan to see how bad loans can linger for decades, particularly if recovery is mismanaged by government (which is more likely than not, in my opinion). Granted, it’s not the identical situation, but I don’t think we are somehow immune to the sort of long downturn the Japanese faced.

In conclusion, buyers can afford to be picky. If they are like me, they are operating on the assumption that price increases will not happen in most markets for quite a while. What’s the rush? To continue your analogy, it’s not like Hell’s Bells is blaring from the speakers.

Kris, if you think prices will correct another 10%, then it would only make sense for someone to buy a property if it was 10% below average recent comparable sales. Leverage works both ways. On a 600k house, 10% is $60,000. Part of what gives any investment value is the anticipation of future appreciation. This is the same reason that Apple trades for a much higher PE (price/earnings) than Ford motors. People simply have higher future expectations of the value. A change in expectations on a stock can lower the value of the company by 20% overnight even if the current earnings are completely unaffected.

When you say restraint though, have you ever known us to get personal?

It’ll be a really great time to buy when prices start coming up year over year. Buying earlier than that is really “spending” money rather than “investing” money. (of course, everyone is entitled to make personal choices like that)

Prices are going to bottom out near the point where mortgage payments + taxes + HOA are roughly equivalent to renting the same home. In the harder hit markets like Oceanside and Chula Vista there isn’t a whole lot of decline left (if the property’s priced competitively) because many properties are at that point, but it’ll be a LONG time before prices start going up again because there’s so much inventory (mostly REO) still coming online. Scripps, Poway, etc. are moving in that direction and they’ll get there eventually. There’s just no good reason to buy if prices are declining and its cheaper to rent. It doesn’t matter where you’re looking. Prices will decline until investors can break even and fence sitters can own for the same price as renting. It’s that simple. We still have a ways to go.

P/R – Good one on the Hells Bells analogy. Touche.

Sven – Good stock analogy as well. However, not every — in fact, not most people — purchase their primary residence as an investment tool. Let the broken record ensue… You may be entirely ROI oriented, and that is absolutely fine and even commendable, but the average family with children and gerbels and memorabilia in tow are looking at the home purchase as more of a long-term living arrangement. Homes provide shelter, they are boxes within which we make our lives, and they are not a simply a detached portfolio building mechanism.

Anticipation of future value… hmmm. If I am of your mind set (which, again, is OK for your circumstances), then I might be trying to impute tomorrow’s values in today’s purchase. But, if I want or need to buy today, I should expect to pay today’s prices. If I want or need to sell today, I would similarly be expectant of a sale price at today’s values, not some anticipated future value. This can play both ways, by the way.

Homes are many things to many people. For you, it is surely purely investment, and that is fine. For many others, it is much more, and that too is fine.

I’m just sayin’… If you want or expect to purchase a home today at 2010 values, then you are likely in for a wait, because there are many more people who are looking for a good home that is a good value today. I know you are a patient guy, but when you see your target decline finally realized, it has come at a price: Lost time in an ownership position, the lost tax write-off advantage, and lost months or years of enjoyment. And when the bottom does arrive, you are not going to be negotiating from nearly the position of strength that you are today.

I don’t think we really disagree. I just think there are two variations on the real property purchase theme. One iinvolves buying a house and the other buying a home.

With that, I’m am pooped. It is Chicken Fajita Night at Chez Berg, and it needs to be ready when Steve returns from showing homes to yet another stoopid buyer who wants to make a purchase in this market.

Okay, okay, buyers of homes, if not of houses, should just pay whatever it is the seller is asking and enjoy their home. I’m okay with that, since I’m not one of them.

But what the heck is wrong with California Chardonnay. thankyouverymuch, and how about a stocked fridge full of Racer 5 IPA from Bear Republic??? Now that should fetch an extra something in the price point.

Personally, if the house came stocked with a fridge full of Stella Artois, I’d easily pay another $30,000 for it. People with good taste should be rewarded.

Jim the realtor had an interesting article on his blog. It seems that the heavy activity on REO’s (because they are usually “deals”) is actually slowing down how fast the banks can list their ever growing inventory of property. I guess that with every offer they receive, they need to do a certain amount of work related to it. There’s no official measurement anywhere that I can find of this, but it’s reasonable to say at this point that many banks are acquiring houses at a rate 2-3x faster then they can list them. So, we get a steady stream of REO’s to the market while a warehouse of them slowly fills up.

That constant stream of inventory entering the market will keep a heavy weight on prices at least for the next 2-3 years.

“That constant stream of inventory entering the market will keep a heavy weight on prices at least for the next 2-3 years.”

I have to agree. And remember the “slide mechanism” is out of sync across the United States and across the world. My market up here in Portland, Oregon is just beginning to collapse. We are maybe 18 months behind you in San Diego. So relocations are just not happening.

BTW, could you send up a little sunshine? We haven’t seen that yellow star since last November…

Another interesting byproduct of our short sale market – We are actually getting more quality buyers for our non-short sale listings from former short sale buyers who have failed three or four times competing with multiple buyers and/or waiting months for the lender to respond to their offer and then finding out they lost the sweepstakes. More and more often agents are calling us on our listings to confirm it NOT a short sale because their buyers don’t want to mess with them.

Kris. some (not many) agents in the metro Washington DC area are now requiring that their sellers are willing to drop prices by 5% every 2 weeks before they take the listing. This practice, while some might think is quite severe, does move the seller to adjust price expectations before the listing is first submitted.

“the perfect home was the one that was the least imperfect within their budget”

Very well said!

“… Unless you are Bill Gates or Warren Buffett, there is always going to be some feature you would have liked but didn’t get.”

If a home is otherwise perfect you won’t like the price so there is no such thing as a perfect home.