Looking for input

I have a crystal ball.  There is very little chance that in ten years the house will be worth its 2003 value, let alone that plus the costs of selling it (~6%).  Don't pay its 2003 price.  That is way overinflated.

I wouldnt buy anything for at least another year.  Short sales can be tempting but I really think the market has quite a drop ahead.  That house will probably be worth less than 800K soon. Are you looking in Norcal or Socal?

"No one has a crystal ball – how does anyone make these kinds of decisions???"

Look at inflation vs income vs housing cost in your area.  You will see that there is still a correction ahead.  People can not afford houses that are 6-10x their annual income.

Some one will by that house if it is in a nice area of socal .....Which it sounds like it is .....If its price well, but that does not mean it will be a smart buy.

I always go back to if you are buying right now and want to find the purchase that is a seeming bargain you will have to find the very motivated seller. That will require writing many below asking offers and see who bites. The draw back is that you may get the price you want but not the house you want necessarily. If you really want a certain house you may have to pay current fair market for it.

I agree with klarek.  In my opinion, prices in California will almost certainly be below 2003 levels within the next year or two.  You probably need to ask yourself how you will feel two years from now when you realize you would have been able to buy the same house for 200K to 300K less (or a much bigger house for 850K) if you had waited.

Would it be a good thing or a bad thing to post the address for you all to see???

This is So. CA and we really want to buy before fall of next year when our youngest will be entering middle school.

We had decided to wait until at least spring to start looking (again), but this one sort of “popped” into our radar.  The whole area is very nice, but this house has so much more land the 90% of the other houses in the area – something that greatly appeals to us.

Just an input for what it might be worth.  Be careful about thoughts along the lines of "a 1.2 million dollar house for 825k", or "buying at a 5 discount".  It's hard to ignore those peak values sometimes, but just remember that they were inflated, artificial values.

Clueless

I am the first to admit I am not the tell all here...there are many that have analyzed...charted...forecasted...crunch the numbers. I am some one that learned the hard way...by getting out there and taking risks. My area is one of the most sought after locations around and I have made smart and not so smart decisions. There will always be risk in a RE purchase we know but one must ask them selves how much risk or exposure are they comfortable with? For most it leys in between Renting and going all in on the best home they can Mortgage. A successful investor once said "only invest what you can afford to lose". I need some where to live so I am willing to take a little more risk since I am paying for housing no matter what investment strategy I come up with.

Just know what you are getting into.  If you are comfortable with the idea that your house could lose 30% value within the next 3 years and you can realistically afford the mortgage (4x annual income with 20% down) and you are aware that you will likely be trapped in your home as you will owe the difference on the loan if you need to sell at a loss, then go for it....  

If you have any reservations about that, I would wait.  People do rent houses that have families.  Why not rent now and wait it out for a year or two???

I’ve been reading this forum for several months now and you all have opened my eyes to the idea of renting.  However, my husband simply can not wrap his head around that idea.  He just can’t. 

“If you are comfortable with the idea that your house could lose 30% value within the next 3 years”

We do meet the other requirements, but no one would be happy losing that much in 3 years time…

I totally agree that the 1.2 was an inflated price that may never be reached again.  But our offer would reflect a 30% drop from that value.

Aren’t some areas going to maintain their value better than others?  How do I go about deciding if this is one of those???

Thanks for all the input – it really is helpful. 

A 30% drop is nothing.  Many houses out there are selling for 50% less than market peak.  If you really want to see massive depreciation, check out this link

http://novabubblefallout.blogspot.com/

and look at the column "top discounts".  Houses in my area are literally selling for 75% less than peak market. 

Don't let any agent fool you that these 30% off peak houses are all "deals".  It's not about gaming the market, winning, or profiting.  It's about protecting your hide.  It's about not making the same terrible mistake that millions of others have made, but with your eyes open.  Good luck dealing with your husband.  I know some women whose husband forced them into the housing market with them, and they are none too happy right now. 

Aren’t some areas going to maintain their value better than others? How do I go about deciding if this is one of those???

You are going to get DOOMERS BASHING this statement and AGENTS PREACHING LOCATION LOCATION LOCATION.

Yes of course certain areas will do better than others. We do not know exactly where you are looking but what I preach is cheapest house in nicest location. It is usually pretty easy to find nice areas ………they cost more.....have always cost more...and will continue to cost more.

If you save more for a down payment in the next year, you will have more purchasing power at the very least. It is hard to exercise patience but I can guarantee this will not be the only tempting short sale you will see. Foreclosures are through the roof right now in Socal and will be throughout 2009. Loans are tightening and unemployment is rising.

It is really foolish to buy right now anywhere in Socal, IMO.

I am in a similar position as you. I have the funds, I have the income but it just does not make sense to buy right now.

For a $680K home built in 2003, at $1.2 mil that house was overpriced in 2005 if you ask me. At the peak, the most it should have sold for is around $1.05 mil.

If you a) really like the house, and b) are compelled to move, and c) feel that your job security is exceptional, and d) it can withstand the looming deep recession for the next couple of years, and e) you're okay with more depreciation within the next few years, then I would pay no more than $625K for it. But start with $578K. At $625K it can very well lose another 16%, down to $525K. But lots of people on this forum think it will go even lower, perhaps $450K-$475K. Approx. 1998-1999 prices.

If you really want a certain house you may have to pay current fair market for it.

Not the best advice I can think of. Fair market is not what someone is willing to pay, but what they can afford. If you disagree, just ask any of the two or three major banks that are left.

If you really want a certain house you may have to pay current fair market for it.

Maybe, but this remains the reality, you can not force a seller to sell at your price can you?

The Short-Sale we are interested in is being offered at $825,000.  Our RE contacted the listing agent via e-mail to express our interest in offering $775.  Just so you know, we were willing to pay more but felt we needed negotiating room.  Isn’t that how the RE game is played in this market???

Here is the response our RE received.

“$775K is a bit too far below the current asking price. If the list price drops to $795K and your clients are still interested, submit then at $775K and we can open escrow.”

Is it legal for an RE to refuse a valid offer?  We are pre-approved, have 20% saved, have nothing to sell, etc.

At this point, we have decided not to pursue this.  I directed my husband toward DrHousingBubble.com and after spending some time there, my husband also thinks we should wait until at least next spring.  :-)

I also wanted to show my h all those great graphs I see here, but I couldn’t find them!  Can someone give me a link???

As always – Thanks for all the help.

J

You dodged a bullet.  ;)  As long as you're looking at it from a peak value perspective, rather than a fundemental affordability perspective you are going to pay too much.

Expressing interest in making an offer is not the same as making an offer.  There doesn't seem to be any legal or regulatory requirement in CA that REAs present all offers.  Nice way to run a business.

Take a look at some of the DQ reports. 

No one can accurately forecast the future… however a Trusted Realtor has tools to closely estimate current values based on square footage, past and recent sales, trends, etc… your Mortgage Loan Officer also has tools available to aid in the estimation of value (Realtor’s are better), and getting one or two (Best) appraisals can give you the best estimate of what’s going on… now you have Four independent professionals assisting you.

With all of this you’ll still not have a 100% certain of what your new home will be worth tomorrow… bottom line is if you like the home, the four pro’s evaluate it’s worth at or above what you can buy it for – then go for it… it’s going to be your home for 10 years +… enjoy the home and bank on appreciation… there are no guarentees… Live your life.

And it's good to know what "affordability" has historically meant in your area:

Median House Price / Median Household Income Ratio by MSA

CluelessInCA,

I understand you have a timeline for the purchase of your home. If you are willing to go into the the transaction well informed, then more power to you. Time really is on your side.

If the bank (or seller) has notified the listing agent that they will not consider an offer lower than _______$ or less than ________% under “market value” Then she may respond to you in that way.

In my area when we have an offer accepted on a short sale by the owner of record, we must put it into pending status (per our MLS rules).

My advice to homeowners on offers that don’t stand a chance of approval from their bank is to counter and continue to market until we get one that actually has a chance of closing.

BTW I'm not playing "hardball"...just attempting to keep everyone involved out of an exercise in futility

"No one can accurately forecast the future… however a Trusted Realtor has tools to closely estimate current values based on square footage, past and recent sales, trends, etc…"

I don't know, we have all been pretty good in forecasting the future.  Azrob in detail has pretty much predicted everything that's going to happen.

So what kinds of tools do you have?  Me, I use MS Excel, my county's assessment web site, and various online MLS database sites.  There is NOTHING you have that could ever need.   The idea of paying somebody such as yourself $10k for awful advice and simple comparable calculations that I could do in my head is nauseating.

GRI - Does the standard CAR listing agreement include a provision that requires the listing agent to present all offers to the seller?  I don't think that it does?  Is there some other legal or regulatory requirement in CA that the listing agent must present all offers to the seller?  Not that I know of, but I might be wrong?

I'm not trying to bicker with you, I just think that it's an important point.

Mikel1, You are not “bickering” lol to you. It is in the N.A.R code of ethics. Awhile ago the same question was posed on this board and both Marci and I went looking for it in the “CALIFORNIA BUSINESS AND PROFESSIONS CODE” (don’t think we found it there). I did consult with a C.A.R. attorney who told me it was covered under fiduciary, due dillagence and reasonable skill and care.

If a seller instructs me not to present offers under X amount I will ask that they send me something in writing regarding the terms or we can include it in the “additional terms” Section 3.B of the C.A.R. listing agreement.
Remember that is just California…real estate varies soooooo widely from state to state

Yes of course certain areas will do better than others.

91021.. Beverly Hills dropped 40% in early 90s. Would you consider BH "better area".

The melt down in my opinion is near halfway point... but be warned we may very well

go well beyond the projected bottom. 

http://www.housingbubblebust.com/OFHEO/Major/NorCal.html

Thanks Space_acer!  That’s what I was looking for!  :-)

This particular house was built in 2003 – sold for 678,500 (according to Zillow)??  This entire high-end (for the area) development was built at about the same time – which is the up-swing of the bubble – right?  Given the fact that so many subprime and Alt-A loans were during this period – I’m thinking it is very reasonable that many of these homes went to such people.  “Look honey!  We can move to Dos Vientos!  Houses will continue to rise – let’s grab one while we can!”

If I am right, I would expect to see these homes go down quite a bit.  Can they go below their original price?  I suppose the logical answer is “Yes” – though that just feels odd…

On the other hand – these are the newest homes in the entire area (91320) so folks with enough money will want to live in this development.  That should help these houses hold their value – no?

Thoughts?

Here is the address of the house in case any of you are interested:  102 Via Ricardo, 91320

Make no mistake every where will lose value...but certain areas will hold, rebound or come back better than others and those areas are the ones that..

 cost more.....have always cost more...and will continue to cost more

Here are some actual numbers for you...

A healthy real estate market has appreciation of between 3 to 6% per year.  And some day...we will have a healthy market again, some areas of the country have already recovered and are healthy.   If the house was $680,000 in '03, and if we had been in a normal healthy market, at 5% appreciation each year, the house would be worth $867,871 today. 

I'm not sure I agree with Klerik, 10 years is a long time. 

Even though I risk attack because I'm a realtor, it is true, a Trusted Realtor can give you statistics to show if that neighborhood or area holds its value. 

Buying a home is always a risk, even moreso in this market, but you can be smart about it. 

(Sales were up 65% in SoCal in September, and 51% of the sales were foreclosures.)

However, last month's sales were still the second-lowest for any September since 1996 and were 17 percent below the 20-year sales average for that month.

This September's huge annual sales increase stems from the extraordinarily weak activity in September 2007, when sales were at a record low for that month. The year-ago sales plunged after the credit crunch that struck in August 2007 made "jumbo" mortgages for higher-end homes more expensive and harder to obtain. Sales were already hurting from the subprime mortgage industry meltdown earlier in 2007, which undermined demand for entry-level homes.

"The pitifully low September 2007 sales numbers weren't tough to beat. More impressive was that this September's sales volume bucked the seasonal norm and rose above August. Steep price declines, especially inland, have improved housing affordability quite a bit and may keep sales levels well above the record lows we saw late last year and early this year. It will depend on the severity of this economic downturn," said John Walsh, MDA DataQuick president.

"You have to view last month's sales in the proper context," he cautioned. "They represent escrow closings, which reflect purchase decisions made in mid-to-late summer. That was before the dramatic worsening of the nation's economic crisis in recent weeks. Over the next few weeks our sales data will begin to show how the meltdown in financial markets this fall has impacted housing demand."