My Manhattan BFF, Noah Rosenblatt, hit the big(ger) times this week with his New York Channel 4 media gig. You can see his uncut interview at Urban Digs.
Noah is a former equities trader (this will become quite apparent one nanosecond into his remarks), and is one of the brightest, most articulate agents people I have ever had the pleasure of meeting. And, you wouldn’t know it, but he is hysterically funny.
This interview dealt with the Manhattan real estate market, of course, but at least a couple of his statements apply to our San Diego market as well.
Having your assets in line, having your debt-to-income ratio below 28%, having enough liquid assets to afford the transaction fees… and also having a four-plus year timeline to own: If all of these things mesh up and line up, it’s probably a good time to buy.
The corollary is that if you don’t have some money in the bank, if the payments don’t pencil out, and if you are not looking to enjoy the property for the mid- to long-term, maybe it’s not a super-great time to buy. But then, these have always been sound considerations when contemplating a purchase. Hopefully, some lessons were learned during this last real estate boom cycle.
{ 15 comments… read them below or add one }
Brian Brady
09.24.07 at 1:09 pm
That final paragraph is some of the best advice I’ve heard. Good work, Kris.
market forces
09.25.07 at 4:47 pm
“…lessons were learned…” sounds awfully like “mistakes were made”. Who made the mistakes which now lead to “lessons”? Will realtors take any responsibility for saying things like “its a good time to buy” about 99.7% of the time? Instead of making ludicris caveates and _still_ saying it is a good time to buy, perhaps your friend, and all the other realtors out there could take a page (the first page, actually) out of any economics textbook that is handy and start advising their clients that markets clear through _prices_. It is _not_ a good time to buy, not yet, because sellers still want 2005 prices for their 2007 listings. It will perhaps take until 2008 or 2009 for prices to clear the market, because no one will tell their clients the tough news that they waited too long and now they are going to lose some money.
Market forces
Steve Berg
09.25.07 at 7:50 pm
market forces - I actually agree and respectfully disagree with you. I agree with your statement that too many realtors (including NAR) put too much of a happy face on the market for most of the past two years. For many of those buyers who overleveraged and whose eyes got big with the fantasy expectation of never-ending double digit appreciation and off the chart short term gains, there was (and is) a problem. I willingly admit that a few of our clients are now part of those statistics. I can also say with a clear conscience that we cautioned each of them and they ignored our warnings.
However, for those buyers purchasing a home for what we have always called the “right reasons”, that being for the day-to-day enjoyment as well as a solid mid-to-long term investment, please show me a period where the median price of a home did not appreciate in value. In San Diego I can find one period since 1968, that being 1990-1995 where the median sales price actually dropped. Coincidentally, I bought my first Scripps Ranch home in 1989 with a 10+% interest loan. It was not worth what we paid for it until 1997. But we endured and enjoyed it immensely and raised our children in it even though we were primed and ready for a move-up for several years. We waited and when we had the opportunity and, more importantly, the financial ability, we finally bought another house.
We did not buy it with some great expectation of huge or even modest appreciation. We bought it because we loved it, wanted it and were willing to be in it for a long time. I had no idea and couldn’t have cared less what it would be worth in 10 years. Of course, I know there is a tax benefit and I that I am imputing equity every month. I also know that I and my family thoroughly enjoy and continue to enjoy it every day and that is and continues to be of value to me. Actually, it’s priceless!!
For the same reason we bought in 1989 I would say to you that it is the right time to buy for those who can afford it and want/need a place to live and a solid mid-to-long term investment. This is not me being my old Pollyanna self (which I have tended to be). Prices have already adjusted downward in many communities and interest rates are very reasonable. People have to chill out about what their property will be worth tomorrow or next month. If that’s a concern, you’re right! Don’t buy now. In fact, don’t buy ever.
Smithers
09.25.07 at 7:51 pm
The large majority of current listings in SoCal (and NorCal!), including newly listed REOs, are “priced to sit”, and even the dullest listing agents know this (but still go along with it!). Seems like a big waste of time and counterproductive, since the going nowhere listings increase the “not-selling” numbers, making potential buyers that much more reluctant to venture into the water.
So it goes. But, I believe the market will recover more quickly than in the early 90s slump, because this time there will be many more foreclosures and, as a result, the banks/institutions — and not private sellers — will be creating the market. When I say the market will “recover”, I don’t mean that prices stsart going nutty upward again. What I mean is that sales activity will pick up, which is good for the RE industry. Transactions that generate fees are what matter to RE industry; prices are not important.
Personally, I do not worry about what RE industry says about it always being a good time to buy. That’s how they make a living. What should I expect them to say? If I walk on a car lot, would the car salesman tell me it’s a bad time to buy one of their cars???
Steve Berg
09.25.07 at 8:41 pm
Hi Smithers - Your comment started out in a credible fashion regarding the price of some homes (certainly not all) right now. No argument there. Your 2nd paragraph was good, too, until the part about all that matters to the real estate industry is transactions that generate fees, not the (sales) prices. Please! Beyond the gross stereotyping, please tell me one just one person you know whose agent made them buy or sell a home.
And then you’re grand finale consists of comparing buying a car to buying a home?? I don’t know where to begin…
Smithers
09.25.07 at 11:21 pm
Steve -
I did not mean to insult. I just meant that the RE industry makes its money off transactions: No transactions = no money; transactions = good; no transactions = bad, etc.
I suppose the incremental price difference is meaningful to some extent, but sales volume is what counts. I’m not sure what you mean about agents making someone buy or sell a home. Where did that come from? In hindsight, I did make an analogy of RE industry to car salesman. Please accept my apologies (at least I did not compare you with lawyers!).
I was trying to respond to the pointed comment made by Marketforces (your comment came in just before mine) that the RE industry is always promoting home buying no matter what the market. My view is that this should neither surprise, nor bother him (or her). That is how RE industry makes a living, puts kids through college, buys clothes and cars and pays taxes, and he should not expect them to suddenly say, “Hey, we are shutting down for a couple of years; See you in 2009″. That is all I was trying to say.
I wish the RE industry all the best in getting sales transactions going again. This will be good for the California economy as a whole, not just RE industry. For each perspective seller that you and Kris can persuade to “price-to-sell” instead of “price-to-sit”, you are doing me (a CA taxpayer) a great service. Same with every buyer that you convince to “meet the seller halfway” on.
This RE bubble may be initially compelling to gawk at, but once you figure out how it is harming us all, you want it over with ASAP. It will be over (IMO) once there is a “normal” volume of sales transactions. The lowered prices will be good for you, since more people can qualify to buy homes again.
I hope I am still welcome to post here.
Kris Berg
09.26.07 at 7:13 am
Smithers,
You are ALWAYS welcome to post here. Period.
I have to say that I think Steve’s remarks were unnecessarily testy and that he misinterpreted your message (sorry, honey), which was on target. You are so correct that far too many sellers are still pricing for 2005. You are also correct, in my opinion (Steve’s too, by the way, because we have discussed this ad nauseum) that our recovery is not going to be a magical return to soaring prices but a more steady and gradual return to appreciating prices.
I only wish we wielded the power to “persuade to ‘price-to-sell’”. We transmit, but too few are receiving right now and choosing instead to live out their listing periods in a state of denial. More of our clients are starting to “get it”, though, so I must assume that this is indicative of the seller-at-large.
Steve’s defensiveness I suspect was born out of frustration (that, and the need for sleep). It is only a little less fun to be a listing agent right now than it is a seller. Couple that with the fact that the agent community has increasingly become the public’s favorite punching bag of late (most recently having been joined by the lending community), and I see a lot of wound-tight Realtors. You were not at all out of line.
Steve - Don’t make me reinstate a blogging curfew!
Now, apologize to Smithers.
Steve Berg
09.26.07 at 7:24 am
Smithers - Sorry for any misunderstanding. You are, indeed welcome to post here anytime. It’s been a tough period for many people. Too many people losing their homes (for whatever reason), many losing equity slated as a nest egg for retirement. And, yes, many people in the industry hurting, as well. Not just agents, but the many related jobs from companies that support the industry such as escrow, title, lenders, inspectors etc., etc.
The market got ahead of itself for many of the reasons we have all discussed and is adjusting as it should be in accordance with basic supply and demand principles. I fully support your proposition that this shift occur sooner rather then later so we can get back to a stabilized market. From all indications, it appears that San Diego, which, from a timing standpoint led the way on the upside is also leading the other way. Together with outside dynamics such as the recent mortgage issues I do believe the resolution of market imbalances has accelerated here.
Thanks, again for your comments. While we challenge each other on occasion, please don’t misinterpret that for any lack of respect.
Smithers
09.26.07 at 8:08 am
Wow, that was nice. (Even the emitocon ….).
“Not just agents, but the many related jobs from companies that support the industry such as escrow, title, lenders, inspectors etc.etc.”
Exactly. That’s why having a healthy market (number of transactions, not price escalation) would be a good thing. My sister-in-law is an escrow agent in Corona. Needless-to-say, things are slow for her.
Of course, there will be continued pressure on reducing the relatively high transaction costs associated with home buying [see exhibit A regarding all of the people employed by the industry], which is probably another reason for the “wound-tight” (and getting wound-tighter) realtors. That “moving of the cheese” thing. It continues to happens in my business (patent attorney), too, and I don’t like it, either.
Good luck, guys. I will be reading.
Steve Berg
09.26.07 at 8:55 am
Smithers and Kris - For the record, my post was prepared without the knowledge of or guidance mentioned in the post by Kris. I’m a big boy and apologized all on my own without undue influence from Kris. As she will confirm, I rarely do what she says.
Sorry, gotta go now or risk being late to get her morning Starbucks fix. And we all know what happens when Kris gets testy.
Kris Berg
09.26.07 at 8:58 am
Smithers, Now see what you started?
Smithers
09.26.07 at 9:28 am
“I rarely do what she says.”
Hmmmm. Steve, do you want to be right, or do you want to be happy?
Steve Berg
09.26.07 at 10:22 am
Smithers - After 22 years I have finally learned the better part of valor. Need I say more?
Smithers
09.26.07 at 11:54 am
Steve - Well said. My wife and I have also been married 22 years (to each other!). I still manage from time to time to choose “right” over “happy”, and then I am neither.
Jim the Realtor said recently, “A happy wife is a happy life”.
Kris Berg
09.26.07 at 11:56 am
I really like that Jim. (Resisting urge to add evil smiley emoticon).