Full disclosure/why I’m here: we’re looking for a single family, 2000 SF in south OC. We’re 700+ Fico, 50k down (and still saving) ready. Yes, we are the “pent up demand” everyone keeps hearing about! (finally, famous!) But most of the homes we see are still 100-200k more than they ought to be. We make well in the 6-figures and still can’t afford these. By “ought to be,” I mean that inflation-adjusted, we could have afforded them in 2001, 1998, 1992, 1987, 1976, you name the year…

We can only hope & pray we’re headed back to incomes & affordability pricing. We’ve had friends buy in the last 3 years and it destroyed them. It’s likely where the “dirty” feeling welled up & out it came. Sorry bout that…

Good stuff. Both your & Lisey’s comments are right on. Thanks for taking the time to detail things out. I’m thinking maybe you should write a guest post on when you think the So Cal (or OC if that’s your area) market will bottom. Even use some of those graphs.

Maybe I over-reacted to that line about feeling “dirty” in your first comment. I’m in this business for the long term–obviously (after 30 years). I disdain agents who lie to make a sale as much as you do. Probably more, because I end up having to pick up the pieces when their sub-prime buyers become distressed short sale sellers.

In this case, I’m just trying to get out my personal view on what I think may be taking place.

During the last recession (around 1995) I “timed” the market for Long Beach multi-family property almost perfectly, but I didn’t realize it until a couple of years had passed. I bought because prices and interest rates made sense to me on some properties, and I was prepared to ride the market down a bit more. At the time, nobody thought we’d hit bottom yet.

I’m planning on getting a more detailed post up, because I think we’re going to see multiple price bottoms, depending on the location & type of home.

As I indicated the the 8/30 article which I quoted from, the coastal plain of So Cal will most likely bottom before the inland areas. As I wrote back on 8/1, new construction prices may have already bottomed. “Move up” homes, which have not been as affected by foreclosures as starter homes, may well have further to drop.

The consensus view among economists is that home prices will bottom next winter, not this one. But real estate tends to be a leading economic indicator. Real estate certainly led us into this recession, and the feds are trying to get real estate to lead us out. There are many people who want homes, and the lowering of interest rates plus the passing of the holidays combined with efforts to reduce foreclosures will almost certainly result in some upward movement of prices over the next six months.

December is a “bottom” for prices almost every year, although that bottom is reported in March as February closings, and the upward move doesn’t show in DQ stats until April in the March closings or later. (That’s part of what I meant by if you wait until you know we’ve bottomed, you’ll be late to the party, along with all the other buyers who are waiting on the sidelines to jump in.)

While I do expect a rapid disappearance of the “super bargain” priced starter homes once we begin bottoming, I also expect rising interest rates will hold back a rapid return to peak sales prices.

So I agree with you that nobody should feel like they have to buy now. But if someone finds a home that works for them with a long term fixed loan they can afford, and they have secure jobs and plan to stay, buying now may trump market timing. They may even end up timing the market right as well.

Because nobody knows for sure what’s next. But we do know that both prices and interest rates are down dramatically right now.

To not understand how realtors have to bring in the “you’ll be too late” hysteria that have cost so many people their homes, savings, and marriages in the last few years? You must know that salary fundamentals (let alone current economic realities) still do not support current prices, let alone RISING prices. You know that… even though we ARE getting closer.

You also wrote that “some of these people will have difficulty with their resets, but they’ve at least been making the original payments for 2 - 5 years.” and “I just didn’t mention the resets because I think they’re not going to be all that significant.”

$1,000 added (or much more) a month isn’t that significant? This is real money to real people! Realtors must have done well in 2004-2006 not to think that’s a budget-breaker for most families. And to refi would be impossible as they’ll be completely underwater as well.

Linsey Planer, realtor in the OC Voice, wrote, “I’m not convinced that this is necessarily the turnaround I’m looking for. Most of the increase in sales is in the most distressed parts of our market. In addition, 60% increase in sales over the historic lows of 2007 is good, but clearly not great. We are still about 50% off in sales volume from 2003 numbers and we are back to 2003 pricing.
Do I think we are approaching a bottom? I do. Am I ready to tell my buyers, ‘Hurry, before it’s too late?’ Not necessarily. I think it may be time for some buyers to take the leap, however there are a lot of factors that go into that decision.”

She continues…
“But, I find it insulting when my colleagues reprint articles with a glimmer of hope, so that they may spread them far and wide with a ‘Hurry and Buy Now’ approach. Consumers are smart. Information is everywhere. My clients understand that sales may be up, but prices are down. My clients all have been watching the market, local trends, and values. To suggest that if they don’t pull the trigger today, they’ll ‘miss the boat’ insults their intelligence and frankly, it continues to diminish the level of professionalism of the industry as a whole.”

You get full credit for running your disclaimer (”nobody can be certain”), but I just don’t see why you can’t simply advertise your experience and years of service instead of goading us into a sale. (I think this every time I go to purchase a car as well…)

My wife says it’s my fault that I know too much (I make charts & graphs and work with numbers all day), perhaps ignorance would be bliss…

Thanks for taking the time to comment. We try to stick to a calm discussion of the facts here rather than personal attacks, but I don’t really blame people who don’t know me for getting upset about a Realtor they think is just trying to make a buck.

In any case, please let me respond to your points:

1. Option ARM resets: I’m well aware of the coming resets over the next two quarters, even went to a lengthy economists seminar on it. I just don’t anticipate anything like the sub-prime foreclosure wave that is beginning to recede for several reasons:

a) Option ARMs were made to more stable borrowers in more stable neighborhoods, as you indicated. Some of these people will have difficulty with their resets, but they’ve at least been making the original payments for 2 - 5 years. They’re generally a more stable class of borrowers than those who’ve already given up on their sub-prime loans.

b) Recent drops in interest rates will make the resets less dramatic than they would have been only a few weeks ago.

c) A host of federal and lender programs are now in place to help reduce the number of foreclosures.

Which is pretty much what I said in # 2 above (not # 1). I just didn’t mention the resets because I think they’re not going to be all that significant. But thanks for bringing it up so I could address it specifically. Many people share your concern, including myself–but to a much lesser extent.

2. I never said “90% unemployment is o.k. for the housing market.” I said “Even in the unlikely event unemployment reached 10%, 90% of the population would still be employed.” My point being that if conditions are right, there are still lots of people able to buy Southern California homes.

Yesterday–on Christmas Day–my business partner Blair was negotiating on behalf of a seller of ours with three different buyers. No, the home was not an REO, just an entry level home that we priced, staged and marketed right. To me, that tends to confirm what I wrote in the above post about a week ago.

Why the activity? A decline in available REOs in the neighborhood coupled with low interest rates and some innovative local loan programs. Those three families were not concerned about losing their jobs. There are plenty of potential buyers out there that have been saving and waiting to buy, and who aren’t worried about their jobs.

3. I never said “you’ll be too late.” What I said was considerably more measured: “All in all, there’s a very good chance this may be the best time to buy.”

I did quote what I wrote, speaking in general terms about market bottoms, back in August. There will come a time when buyers, like lemmings, flock back into the market, and if you wait until then you will have missed the bottom. That’s what I’ve observed over and over again in the past three decades in this business, and I hardly “feel dirty” sharing my advice and experience.

On this blog we try to give our readers a view of what we’re seeing on the front lines of Southern California real estate, through the perspective of our years in the market. As I said at the beginning of the post, nobody knows what’s next. I still think there’s a good chance that we just passed through the price bottom, and I hope to have a new post up going into more detail shortly.

There are many unethical real estate agents out there, so I can’t blame you for being skeptical. Most of them haven’t been in the business all that long, and many of them have now found other lines of work. They are more of a problem to us than they are to you, believe me.

Again, thanks for taking the time to comment. Discussion–especially of differences–is one of the best features of today’s interactive media.

Hope my clarification helps.

With 30 years experience you say that 90% unemployment is o.k. for the housing market? With that, you have crossed over to either ignorance or disingenuity.

And scaring people with “you’ll be too late”… I felt dirty just reading that. I can’t imagine how it must have been writing it…