I caught the recent piece on Seattle Bubble replaying NAR ads over the last few years, each ad more urgent than the one prior in recommending the purchase of a home. The ads raise an interesting question: Exactly when if ever is it really a “good time to buy,” generally speaking? And more to the point, given the current “buyer’s market,” is it a good time right now?
Seems to me that any thoughtful analysis would say, “No.” Really, in some ways this might be one of the worst times to buy, second only to buying into an existing and already overinflated bubble (say, 2005-08). [Editor’s Note: probably inappropriate hyperbole.] Why? Two factors:
First, its pretty widely accepted that the housing market is going to limp along for the next few years. Values will either bump along the bottom, or even drop a little — or a lot? — further, for the next year or two. So in terms of “timing the market” there appears to be either no loss or possibly — probably, depending on your degree of pessimism — an actual benefit to staying on the sidelines for a year or so.
Second, up until last week, when somebody asked me whether now is a good time to buy, I always pointed out the historically low interest rates. But that rug has now been pulled out from under me, as interest rates will remain at historic lows well into 2013. How do we know? Because the Federal Reserve is holding the federal funds rate at essentially zero percent until then, and mortgage rates are closely related. Admittedly the federal funds rate is not the only influence on mortgage rates, as they are also heavily influenced by the rate on U.S. treasury bonds. But given the likelihood of a Euro-zone collapse — larger by the day, it seems – it appears that U.S. bonds will remain one of the favorite “safe havens” for some time to come. And that means bond yields will remain low.
So, a flat or declining market, combined with historically low interest rates that will remain low for another 18-24 months, means that now is NOT a good time to buy, generally speaking. Do you think we’ll be seeing a dramatically new NAR ad anytime soon? 😉
And now for some backtracking: This entire analysis is focused only on general market trends. As others have pointed out, the question of whether it’s a good time to buy must also take into account unique personal factors. Needless to say, if you’re anxious to put down roots, or you’ve outgrown your current place, or if anything else is going on in your life that makes it a good time to buy NOW, then its yes its a good time to buy. But if you can wait, then you will most probably either be in the same or a better situation a year from now.
Craig, interesting comments. Your basic premise, it is better to wait than buy now is exactly why a deflationary enviornment is so damaging to the economy. Because no one does anything. I prefer to take a different approach and go with the bird in the hand analogy. Because I am firmly convinced that nobody knows what is going to happen in the next 60 days economically and geopolitically, let alone the next 2-3 years. So, if you’re thinking of buying a home, and you see one you like at a price that is reasonably, why wait? Buy it and don’t look back and enjoy owning your own home. At better yet, at historically low rates. What is wrong with that?
Nothing at all. Indeed, I took the weekend off and continued to think about this post. I had the same thought as you: Craig, exactly when did you discover your own crystal ball? The fact remains that the future is unknowable, while there are some very good reasons to buy now. Given that fact, I think you can legitimately criticize the basic premise of the post…
It’s always a good time to buy Real Estate.
There have been good, prudent, purchases these past three years. That will continue.
Any seller can have ideas in keeping with the market place. Some land lords unloaded properties before prices fell, at below what is called Fair Market Value. Some properties are just worth owning no matter what.
You should have an agent who knows what is a good purchase, and work with them. A good agent can be a very valuable resource.
Just as an example. I looked at a property near Green Lake that is an older home. I saw it the first day on the market and asked if I could write about it. The agent said no. He told me there was an offer on it. Over a month later it’s still sitting there.
I had said that no one would “get” the property the way it was. He had simply broom cleaned the property, but didn’t know anything about it, or he wouldn’t say. It is really an exceptional place that can be completely rehabbed, or it could be made very livable for less that $20K or $30K depending on life style.
There is sits.
If you watch for a deal, and are willing to accept some flaws, there is always something of value to buy. Just sayin’
Craig,
You seem to be missing Shiller’s point, “There’s no precedent for this statistically, so no way to predict”
It’s difficult to time the market. It’s also difficult to predict long term interest rates. (If it was easy, I’d be making a killing buying/selling bonds)
I think it’s important for people to evaluate their own situation, calculate how much it would cost to own vs rent, and decide whether it makes sense to buy. Since apartments in my area raised rent by 20% this year (Microsoft went on a hiring spree), it cheaper for me to buy, if I stay for at least 4 years. I highly recommend this calculator http://www.nytimes.com/interactive/business/buy-rent-calculator.html