For BuyersGeneral Information October 8, 2009

Is now the “perfect time” to buy?

The answer to this question depends on who you are and the reason you are buying.   It’s true that prices are lower than they’ve been in years and interest rates are at historic lows as well, but does this make it “the perfect time”?   It’s definitely a VERY GOOD time to buy.   With incredible deals on bank-owned
homes, we’ve seen properties going for 50% or less of what they sold for at the peak about 3 years ago.

But once again, the “perfect” time depends on the person and situation.   For us, the “perfect” time was Nov. of 2000.   At that time, we were tired of throwing away almost $1000/month on rent and wanted a place of our own.   We found a townhouse complex that we really liked in Encino and started putting in offers.   We were too late on one and got outbid on another, but finally had an accepted offer with the third.   At the time, our interest rate was 7.75%, but the price was still low; and even after paying taxes and HOA fees, we were only paying a little more than what we had been paying for rent.   We were actually ahead of the game when you considered the tax deductions and we were finally building equity.   In fact, prices were going up so quickly that within 6 months, we had more than 20% equity, even though we had put down only 5%.   This allowed us to refinance and get rid of our PMI while getting the lower rate at the time of 6.75%.   We sold the townhouse 2-1/2 years later at a considerable profit and were able to buy a single
family home in Burbank.   That townhouse was the beginning of a string of real estate investments that eventually allowed us to quit our 9-5 jobs and move to our “vacation home” in Big Bear. As I said, for us, it was “the perfect time” to buy.   If we had waited for interest rates to go down the 1 interest point,
the price increase would have far offset any benefits we would have gained.  

The current real estate market is a lot like the market at the end of 2000.   At that time, prices were considerably lower than they had been at the peak of the previous cycle, interest rates were low (though not as low as today), and the stock market had crashed a few months before (tech bubble). So now for an
example from present day.   We’ve been working with a very nice couple for the last 11 months that came up to Big Bear with the express purpose of buying a second home.   The husband viewed it more as an investment, but the wife wanted a home that they could eventually move into and raise their young son away from the pollution and problems of “the big city”. With the husband having a great job and plenty of savings, they had no problem getting pre-approved.   The biggest problem was finding something they could both agree on.  With the husband being more investment-minded as far as the purchase was concerned, he wanted something less than $500K, with a good rental history, in a good rental area.   For the wife, it was much more personal  and she wanted a place she would could see herself living in, regardless of the price or rental potential.    Over the last year, they looked at scores of properties and put in at least a dozen offers (mostly on
bank-owned properties).     Because these properties were bank-owned, our clients had lots of competition and regularly got outbid because they couldn’t bring themselves to offer the asking price or above, even when it was 40-50% less than what the previous owners had paid.   Finally, in July, they found a home they both loved that matched all of the criteria they both had.   It was a brand-new home in Moonrdige that would
rent incredibly well AND make a great place to raise a family. Even though it was a short sale and listed at $475K (the recent appraisal had it valued at $600K), they offered $450K, minus closing costs.   The bank refused to counter and our clients refused to increase their bid, so it ended up going into foreclosure.   It came back on the market recently as bank-owned for $399.9K (a good example of why banks are going out of business)!   I alerted our clients and told them they should offer the asking price ASAP if they were still interested.   They were and offered the $399.9K (minus closing costs).   After almost a week, we had an accepted offer by the bank and I called our clients to let them know.   The husband was a little
surpised and said he had expected to get outbid again.   He was a little concerned about additional stock market declines over the last week and prmoised to call back after speaking with his wife.   When he called back, we has very apologetic and explained that with the stock market losses in the last few months, he didn’t realize how much he had lost until he sat down and really looked at it closely.   It turns out they no longer had enough for the downpayment and furnishings.   Over the last year, while worrying about offering a few thousand more or the real estate market going down another 10-20%, he had left his money in the stock market and lost almost 40% of it!   It turns out that July was “the perfect time” for them.   Even if
they had paid the short sale price of $475K, they would have put the downpayment and furniture money into the house which is still worth at least $500K based on two recent sales on the same block.   Instead, all of the money they were going to use was lost in the stock market.

As I said, the “perfect time” is different for everyone.   Does saving another 5% make up for missing another year of Christmas in the family cabin with the kids or grandkids?   Does waiting for the media to say “it’s time to buy” make up for losing a year of rental income?   Does waiting for a possible price decline make up for rising interest rates?   Does leaving money in the stock market waiting for it to “go back up” make up for probable higher capital gains taxes next year?   The timing and reasons are different for everyone, but for many (not all), now may very well be “the perfect time to buy”.

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