Time Magazine: Ignore the headlines – do not wait to move…

“You put down 20% and get a 30-year fixed-rate mortgage at today’s rate of 5.5%. Monthly principal and interest come to $994.31. Let’s say that 12 months from now the same house goes for 10% less, or $197,010. But by then the recession is history and the Fed is jacking up rates to stem inflation. If mortgage costs rise just half a point, to 6%, your monthly payment would be $994.94 and you’d have saved nothing. Meanwhile, some prices might steady and sellers might become less willing to negotiate. And you have spent a year living someplace you’d rather not be.”See the full Time article here (requires Adobe Acrobat).

7 Comments

  1. Why are you putting up this story from June, 2006? It’s old, and its advice proved to be way off target. Haven’t any pro-housing pieces been published since then? In the 18 months or so since this was written, Orlando condo prices have dropped by at least 25% (and that’s being conservative).

  2. Hi Saul, the piece is from Feb 25th 2008. It’s dated on the bottom right hand corner. The image used to illustrate the piece is from last year but the data is current. But the point is, there’s not much point in waiting. If you think you can predict rock bottom and buy at precisely that moment then you should probably forget real estate and get into the stock market! We’re surely close enough to bottom for it to make precious little difference.

  3. ” We’re surely close enough to bottom for it to make precious little difference.”

    And your assertion/prediction is based on what, exactly? I mean, you just said ” If you think you can predict rock bottom and buy at precisely that moment then you should probably forget real estate and get into the stock market! ” and then in the very next sentence, you make a prediction that we’re “close enough” to bottom. Really? How can you tell? Can we really know where the bottom is until it has passed.. just as we didn’t know the boom was “over” until well after it was?

    That piece you linked from Time is full of all sorts of assumptions/predictions — like the possibility of interest rates going up, when there hasn’t been a peep from Mr. B about there even being a remote chance of that happening, at least not in the next couple of meetings. And assuming that whatever it is we’re going through (correction, recession, crash) is going to be completely over and done with in the next year is a bit naive. We may be well on our way out of it by then, or not. There is simply no way to know right now.

    Where I really take issue with the Time analysis is that if a buyer puts 20% down to hurry up and buy right now, and comps fall another 10%, that’s half of the buyer’s down payment wiped out — pain that would no doubt be felt if the buyer then had to sell within five years while “home prices might steady” (another assumption/prediction that isn’t easily supported right now).

    I’d rather take the risk of a slight uptick in interest rates, if it meant I’d end up paying the same monthly amount for a less expensive house.. but without the immediate loss of half my down payment. Of course, no losses or gains are realized until a property changes hands, but I’d sleep better knowing that I had waited to buy until the bleeding had stopped. It clearly has not.
    The ORRA figures for January showed the slowest number of homes changing hands in 12 years, with another 10 percent “monthly” drop in median prices. I’m looking forward to the February numbers, which should come out sometime in the next week.

    Oh, and as far as “spending a year living someplace you’d rather not be” is concerned. Well, that’s another year one can spend saving up money to have one’s pick of the, what is it, 30-some-odd month inventory of homes in Orlando right now?

    On the other hand, I totally agree with the Time author’s points about buying stocks. With dollar-cost averaging in one’s IRA or 401(k), there’s plenty of bargains to be had today — especially for nest eggs that won’t need to be tapped for another two or three decades.

  4. Sorry about the date of the story, I was just lookin at the “Home Sweet Home” Time cover on this page that’s dated June 13, 2006. But I question Time’s judgement now because they were so bullish at the apex of the market, and we all know what’s happened since then.

    Personally, I’m of the mindset that just as people got burned buying into the hype they would be priced out of the market if they waited any longer, they may still get burned now if they buy into the hype that “we’re surely close enough to bottom for it to make precious little difference.” This is close to the same same thing I said to myself when I bought Citigroup’s stock on a dip from $50/share to $40/share (it’s now at $21/share). Bottom line: the absolute bottom we have mind can become meaningless as broader market conditions change – just look at Japanese real estate in the ’90s.

  5. I don’t entirely disagree with you guys, however, it seems odd to me that everyone and their dog wanted to buy when prices were going up – and now they’re going down everyone is shy. What happened to the “buy low, sell high” philosophy? All the most successful developers got rich buying in a slump, not when things were looking rosy.

  6. ” What happened to the “buy low, sell high” philosophy?”

    Oh, I think it’s still around. But I believe most buyers are skittish because if they pull the trigger right now, it could easily turn into a case of “buy low, sell even lower.” There’s just no way to tell how much more prices will fall (or not) in the months and/or years to come. I’m sure the developers who know what they’re doing are, in fact, snapping up distressed properties in hopes of being able to profit once prices stabilize or begin to increase modestly.

    ” it seems odd to me that everyone and their dog wanted to buy when prices were going up – and now they’re going down everyone is shy.”

    Well, media, banker, and realtor hype during the boom no doubt played a factor.. along with greed on the part of a number of buyers/investors. Now, we’re seeing people react to the fear (and in many cases, reality) of loss.

    I don’t know enough about psychology to adequately explain the mentality behind the masses getting into a buying frenzy when things are hot, then turning a 180 when things cool off, but I have come across a number of (easily found on Google) articles that go into great detail about why we act that way. I think it goes all the way back to Holland’s Tulip Mania.

  7. Your monthly payment might be the same, but you’d owe more money and be paying more in taxes on a higher valued property.

    This crazy focus on total “payment” per month is what got us into this mess. As a buyer, don’t be fooled by it. Don’t take deals on closing costs or free tv’s or free trips to the bahamas either. Sellers need to lower their prices and the market needs to be allowed to fix itself.

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