Sunday, September 10, 2006

L.A. Times: Buyers play wait and see - staying on the housing-market sidelines can make or break you

It's really amazing how much there is still this "buyers who wait will be losers" and "soft landing" mentality out there, as evidenced by this September 10 L.A. Times article by Michelle Hofmann. Even would-be buyers who are waiting admit they are gambling by "rolling the dice."

We've heard this message before in July, but perhaps the "buyers who wait will be losers" voice is a bit shriller and more insistent now.

The article describes a few successful gamblers who found a decent property, rennovated, and now, based on "comparable prices and recent market sales", figure their homes are worth much, much more. It then goes on to describe those poor unfortunates who sold their properties early and then "got stuck" waiting when the "window of opportunity slammed shut." One realtor who does not advocate market timing (what realtor does?) cautions that when the market "hits bottom", "don't you think that everyone is going to start jumping on the bandwagon? ...if you've seen a home you like that has gone down in price, why not get in the ballpark?"

The article mentions the San Francisco Bay area housing market boycotter Boycott Housing. The website editor is a firm believer that the housing market will mimic what happened to the dot-coms of 2000 following the tech stock mania. Be sure to give that site a visit!

DataQuick, unfortunately, still does not see the potential danger that lies ahead for homeowners. Although the firm's analyst concedes that about 1/3 of listings are "wildly overpriced", and "all kinds of people are trying to gain the peak of the market by putting properties on the market at fantasy prices", apparently he is dismissive of any comparisons to the dot-com stock crash, arguing that houses are not bought and sold as easily, and then goes on with the "buy and hold for the long term" argument that stockbrokers love to use.

Additional note: One of the lucky gamblers mentioned in the article who rennovated a property and now thinks it is worth much, much more lives in Woodland Hills. According to Melissa Data, sales volume in 91364 was comparable YOY until July, when it really started to slump. 91367 has been an area on steroids, but sales volume contracted significantly in August. September so far is not shaping up to be any better. It'll be interesting to see how a rennovation gambler's luck holds out. I find the "buy a property cheap and rennovate it" argument very similar to the value stock buying mentality, which has some merit. Unfortunately, the tricky part comes in knowing what constitutes good value. Our perception of value tends to change over time, and can change overnight in a "market crash" scenario, and therein lies the trap.

4 Comments:

Blogger mike said...

One realtor who does not advocate market timing (what realtor does?) cautions that when the market "hits bottom", "don't you think that everyone is going to start jumping on the bandwagon? ...if you've seen a home you like that has gone down in price, why not get in the ballpark?"

everyone still acts like this downturn is going to work itself out in six months and then the market will go full steam ahead again. the prices have been stretched so far that there's really nowhere to go but down.

i imagine that this downturn will grind on for several years, and by then almost everyone will be gun-shy when it comes to real estate. busts aren't followed immediately by booms, you first need time for people to forget how bad the bust was.

it may be difficult to time the bottom exactly, but much easier than timing the top. you could have bought about anytime between 1994 and 2001 and done fine after the last boom/bust. i imagine it will be similar this time. you might not get in at the lowest possible price, but i don't see prices growing too much beyond inflation for at least the first few years after we hit bottom.

if people just wait until they can actually afford the house they want to buy they'll be fine.

5:30 PM, September 10, 2006  
Blogger Wannabuy said...

I read this arcticle and I wanted to go on a rant. Basically, the LA times just looked at recent price history and... nothing else.

Nothing on the historical prices of homes to wages. Nothing on affordability being < 2%. Nothing on California being the epicenter of the option-ARM debacle.

I too expect the "buy now" comments to get louder and louder. My comeback? My company is moving staff out of state not at the company's desire but because we have too many people marching into manager offices stating "Move me out of California or I'll go work for X." If they're good people, we're finding jobs for them in Pheonix or various Texas or Mississippi locations.

Will people jump in to buy at the "bottom?" Yes, they always do. That's why there is always a dead cat bounce. At the true bottom... as Mike noted, people are too gun shy.

Neil

8:25 AM, September 11, 2006  
Blogger bearmaster said...

I once learned something about recognizing real estate market bottoms from a very successful stock speculator. He was attending bank repo auctions in Houston in the 1980's after the oil bust, and, as he put it, he was able to fully buy one property with his credit card. He probably spent an equal amount of money fixing it up. He then rented the property out to an airline pilot for probably a decade, with an offer of rent with an option to buy, applying rent payments to the down payment, but the pilot didn't want to have anything to do with owning it. Now that is gun-shy! In the meantime, this guy probably got back his investment maybe 30-fold.

The book Timing the Real Estate Market by San Diego builder Robert Campbell devotes some pages to the issue of market psychology at market tops and bottoms. This blog actually referred to that book in this February 10 post. When you see those doom and gloom headlines as shown in that post, hopefully we are just a few short years away from a bottom. The author noted that the headlines in the illustration appeared between 1991 and 1994. It also shows how we haven't even begun to experience a downturn like the previous one.

America's Housing Bubble: The Real Estate Outlook for 2006-2012 talked about a mild recovery after the initially scary drop, from the dippy buy the dip crowd. After that, it'll really unravel.

8:53 AM, September 11, 2006  
Blogger vfsv said...

We track Silicon Valley DQ stats directly at:
http://www.viewfromsiliconvalley.com/id125.html

Resale homes fell -$47K in three weeks. Did anybody see a headline? (Me neither...)

1:06 PM, September 11, 2006  

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