Terrible time to buy.

The $8000 credit just ended. While contracts had to be written by the end of April, closings had to happen by the end of June. (now extended for those who had contracts)

We are likely to have much fewer first time buyers starting today. However, home prices are sticky, sellers don’t just immediately drop their prices the instant the market changes, it takes them several months to start dropping prices.
So, what do we have today?
1. Prices still higher due to the effect of the $8000 credit.
2. Less supply, because many contracts were written to make the credit deadline
3. More supply coming, foreclosures still occurring at record levels.

If you are a buyer, I would seriously consider waiting a good 6 months, to let these factors take effect. Continued foreclosures, with less first time buyers will inevitably build up inventory on the market, meaning the market is coming your way.

Since the credit ended, what have we seen?

1. 30% drop in loan applications for owner/buyers.

2. 30% drop in new home buying.

3. 30% drop in pending contracts to buy homes.

Pretty consistent evidence isn’t it? Most seem to assume that at worst we will have ‘a bad month or two, then the market will return.’ But is that reasonable? We have now had over a year of credits to encourage first time buyers, isn’t it possible that we really don’t have that many first time buyers left? Personally I think we will have much fewer first time buyers for at least a year, and that spells doom for a market that has seen a 100% increase in delinquent mortgages in just over a year. So unless you are buying a home that costs much less than renting each month, you are taking a very large risk buying today.

Remember me when you get ready to buy and sell:

Roberto A. Ribas Homesmart Realty

robertoaribas@gmail.com

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About robertoaribas

Math professor, Realtor. 12 years of buying, selling, investing and managing rental properties. rock-climbing and salsa dancing. robertoaribas@gmail.com
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9 Responses to Terrible time to buy.

  1. Mary E says:

    Hi Roberto, not being a smart ass here. Thanks for putting your Realty company here just above. But is your company realy or did you have a typo error? Thanks Mary

  2. Teodor says:

    I agree with you about all you r saying. However, can you comment on feasibility of buying now vs waiting by factoring the low interest rates for mortgages? what if in six months there is a decrease in prices but interest rates go higher?

    thanks

    • Teodor:
      Rising rates would be another nail. So, if rates go up, prices will simply fall even further. Buying at a lower rate/higher price would leave you: A. underwater, B. unable to sell if you needed to relocate for a job, C. harder to pay the home off.

      So, unless the mortgage is lower than rent, this could leave you in a bad spot for years. However, if you plan on staying in a home for 30 years, obviously, you won’t care as much about this.

  3. Fourier2020 says:

    Hey Rob,

    Ran into you on the Zillow board a couple years ago. Glad to see you have started your own blog. I’ve got you book marked.

    I think we are setting up for a repeat of 2008 in 2010. Not sure if that will actually present a good buying opportunity tho. I think areas that have grown by attracting retirees are going to keep getting whacked hard. Uncle Sam is running out of wallet.

  4. Craig says:

    Great stuff. I hope you get a wide audience for this blog because people need to hear this. All the press articles quote realtors and never call them out on their positive interpretations of this data.

    I’d like to hear your thoughts on homes above $500k. I don’t think the tax credit has much effect on that market, it’s too small to get buyers excited. I’m wondering though if low rates have pulled forward a lot of demand, and therefore won’t help much in the future. That and any other thoughts you have on this market are much appreciated.

    • Craig:
      I believe the over $500K is in even more trouble for the following reasons:
      1. very low demand. To buy over $500K, you need to verify a very high income, good credit, and in many cases 20% down. MOST people who meet those criteria have a home already! This economy is not making a bunch of newly rich people, and won’t for years.
      2. TOO high of supply. Due to very lax lending standards, MANY people were able to build homes in that price range over the past few years, who would never qualify today. There homes are coming back as short sales/ foreclosures.
      3. Rent/buy ratio is generally VERY bad at that price point, especially in Phoenix. You could buy 5 100K homes, rent them all out at $1000 a piece, and net twice the rent a $500K home would rent for.
      4. EVERY person I have known recently buying a higher end home, has another one they are going to let go into foreclosure. Yes, there are people out there with 30% down, and sufficient income to buy another home without selling the first. But in the long run, this is a net zero for that market: buy one home, let one go into foreclosure leaves the overall supply and demand the same!
      5. Over a million dollars, there is something like 4 years worth of inventory, so clearly their prices will drop. I would hate to buy a $500K home today, only to realize in a couple of years, I could have gotten a much nicer home, today’s million dollar home, for the same price!

  5. Craig says:

    Thanks a bunch. You’ve helped my eyes connect with my brain. The inventory and sales problems you mentioned are quite evident but sellers are being stubborn. It makes you wonder sometimes if they’re right and you’re wrong. I guess we just have to wait ’em out!

    • Craig:
      I’m with you! I sold my home in north Scottsdale five years ago, always planning to return after the crash. But the housing market is like watching a super slow motion movie of a car crash… it just keeps on crumpling up!
      Nevertheless, I am not willing to part with an extra 30 or 50K to buy early… I’ll just keep on waiting and watch the prices fall! Besides living in Tempe is actually very nice!

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