While U.S. existing home sales were “up” in January (but once again, down 23.8% on a year-over-year basis and with prices down 8.2% nationally and 13.4% in the West), the pace of U.S. new-home sales continued its slide in February, down 1.8% to its lowest level since February 1995 and with a median sales price that’s down 2.7% (year-over-year).
In short, the national housing market has yet to show any real signs of recovery much less of simply stopping its slide (see the light blue line).
∙ The Good And The Bad (But Not Necessarily The Ugly) [SocketSite]
∙ New-Home Sales in U.S. Fall to Lowest in 13 Years [Bloomberg]
∙ January S&P/Case-Shiller: San Francisco MSA Continues Decline [SocketSite]
As a non-real estate professional that is getting into the market to buy my first home, this begs the question of how much further are things going to drop?
I know the old adage you can’t time the market applies to equities, but what about real estate? I think I am just getting that nervous feeling that I am going to buy, only to see prices drop even further in the next 6-12 months.
A couple of weeks ago I received an email from a local agent letting me know that the “correction” was over and the market was on the mend. Wish I would have kept it.
huh?!?! This is SF – we’re totally immune to everything from disease to pollution to real estate bubble bursts. Prices have risen 20% in the last week, and will continue to do so forever.
Andrew:
if we knew that, we’d all be rich!
only you can know if buying is right for you.
when I bought, I thought about it this way:
Will I be happy with my purchase if my house value loses 20%?
for me, the answer was “yes” so I bought.
since then, my house appreciated significantly. but I’m still not off the hook.
I still have the question: starting from today, would I still be happy keeping my home if my house loses 20%?
for me the answer is still yes, so I keep my house. (FWIW: I strongly believe that my personal house has lost about $50k of value since peak based on sales this month on my block.)
We just ended one of the biggest real estate bull markets in history. it is rare to have a double boom in any asset class.
thus, it is unlikely that we will see those 10+% gains any time in the future. Possible, but unlikely.
it is possible that your newly bought home will lose value as well. Who knows?
Thus, I’d think of your home as a purchase, and not as an “investment”.
kind of like a car. If you buy a car, you know that it will steadily depreciate, but it will give you utility and pleasure while it depreciates. thus you’re buying it as a tool, not investment.
you just run the numbers with that in mind.
same with housing.
over time your future house may appreciate or depreciate. make sure you’ll be happy with your purchase either way. if it depreciates: well then it served its utility as shelter. if it appreciates: it’s a bonus. DON’T DEPEND ON APPRECIATION.
if you think of housing this way, it will make you a prospective homebuyer, and not a speculator.
I would also VERY STRONGLY argue that you look to your future life.
-are you single? married?
-do you want kids in the near future?
-single income? dual income? and in the future if/when you have kids?
-planning on staying around a while?
-are you steady in your job, or could you be transferred around?
traditionally, (when not in boom times) you need to stay in a house for 5-7 years to really break even.
I see too many people buy a starter home that isn’t right for them, and get trapped into it.
(like a young newly married couple planning on having kids buying a 1BR condo… why not just go for 2-3BRs right away? or a couple buys an expensive house, only to realize that she wants to stay at home and now they can’t afford the house)
and I’ve oft stated this:
do not stretch to buy. you will quickly take your house for granted, but those payments are forever.
make sure you have a big cushion in your finances. there are often many added costs associated with owning that one doesn’t think about (yes, even in condos). I spend ON AVERAGE $6,000/year on house maintenance stuff. (but I have a 100 year old SFH). I have also sunk about $30,000 on renovations, and have another $30-60k that I’m going to do. This is all just in the last 5 years.
I’d use the “old” lending standards. around 28% of gross pay or 33% of take home pay, or 2-3x income (4x max), whichever is LESS.
I know I know, it’s hard to do that in SF… if so then maybe buying is too much of a stretch.
ex SF-er: that was a great post in response to Andrew’s. Maybe Andrew can buy a house and he will still be happy with it (the hosue) if it looses 20% of its “value”. Maybe he’ll keep it for 15-20 years. However, will there be heartburn if he buys a house today for $600K and a similar house sells for $480K a year from now? I think there might be.
Should you buy? Well, this will require both history and math.
History: At the depth of last bust, and for some time after, it was cheaper to buy than rent.
Math: How much would it cost to rent that place?
See? There’s your answer. If you can live with that number, go ahead and buy. If you can’t, wait. Housing markets aren’t like stocks – they don’t turn on a dime. Once things hit bottom, they tend to bounce around there for a couple years before they come back. Thing is, it may be a few years before they hit bottom, so the other question you’ll need to answer is: How long are you willing to wait, just to get a good price?
I’m lucky, in that I’m only interested in the south bay. The math portion there is much more compelling than SF proper, especially “good” SF properties.
How much new construction is there in SF, except for $1,000/sqft+ condos in SF? In other words, how relevant is new construction to SF? There’s absolute NO INVENTORY. Take a look yourself for nice SFH for $1.5mil. It’s a joke! It ramps to $3mil! Grrrr. 2221 Baker is already pending too!