Why are people buying homes now?

Question

I'm aware that people are buying homes now. I know an agent in SoCal who has sold 57 homes in 2008 and already has sold 10 in 2009. She tells me that these people are buying retirement homes. Most of them will rent, let them lay vacant or use as a vacation home for 5-10 years and then make it their primary home for retirement.

I wouldn't buy a home now. Why would you when you know that home prices will continue to decline another 10-20%. Why not wait for the bottom and save yourself 20 to 100K?

Does anyone have any insight into this mindset? Why would they buy now?

Shari Posey · Answer

I just closed escrow on a little property on Friday. I purchased at a 2001 price and at a 30% discount from the last comp sale in December, probably because I was all cash and the bank wanted to get it off the books. I feel absolutely fine about the purchase.

I can only speak for my market but there are tons of buyers. All the lowest properties get multiple offers. Again, lots of renters are seeing that they can just about pay the same amount in a 30-yr. fixed with 3.5% down as they are paying renting. (I'm not talking about luxury homes or upscale properties.)

Dave P. · Answer

There is absolutely no way inflation will not return. No, I'm not saying hyperinflation is a given. I think it is a chance but am not building my investing models on it. But, inflation will be a major economic factor starting later this year and continuing for a long time.

X2.

Ummm, money is pretty cheap right now...if you can get it.

Account Closed · Answer

As an investor we are in probably the absolute best overall opportunity anyone alive today has ever seen or will ever see. I honestly believe that because of an interesting combination of factors coming together.

There is absolutely no way inflation will not return. No, I'm not saying hyperinflation is a given. I think it is a chance but am not building my investing models on it. But, inflation will be a major economic factor starting later this year and continuing for a long time.

As for the bottom in real estate; calling a bottom is only accurate when you can see it in your rear view mirror. No one has a perfect crystal ball. However, if your horizon is more than three years we are very near what will be identified as the bottom.

I am convinced the next few years are going to make the next generation of the super-wealthy. But, only for those who act with knowledge, sound information and strategies and the ability to hold on while all the scared money bails or is pushed out of the market. The gimmicky ways the gurus have been teaching are falling apart.

The time is now, for those with a minimal to modest starting point, a determined will and some patience.

That is why I am a buyer in this market, even today.

Steve L. · Answer

We buy and sell in Southern California.  Most of our buyers are first time buyers who are renting right now.  Their new mortgage is less then rent for a fully remodeled house.

We also wholesale pre-rehabed properties to other investors, they are buying mostly to rent.  If a property cashflow sufficiently now and your planning to hold long-term why not...

Derek W. · Answer

Since you are buying with cash, it isn't relevant.  But for the buyers I am working with they are more concerned with terms.  The prices already cash flow now.  But they are afraid interest rates are going up soon and want to get the lowest rate possible.  With all of the money we are printing it seems pretty inevitable that we will see double digit interest rates in the next few years.  Then even if the prices have come down another 20%, they lose that savings in interest paid.  But I agree that in SoCal we will see prices come down through 2009.  Bruce Norris recently released his 2009 market predictions.  i summerized it in a b.p. blog here http://www.biggerpockets.com/blogs/238/blog_posts/605-california-market-predictions-2-9

David Nguyen · Answer

"be fearful when others are greedy and be greedy when others are fearful"

Alfred Bell · Answer

Excellent advice Harrison. Thank you very much.

Harrison Painter · Answer

I understand your thinking, but still do not totally agree.

If your were looking to buy one property, I might be more on the side of waiting a little longer.

However, since you are looking at buying 4-5 I have some concerns.

Study up a bit on cost averaging. Basically, If you buy now, at the bottom, and when you see it come up, it will average out in your favor.

The problem I have in trying to time a bottom is that, more times that not, you will miss out. It can also cause some emotional based buying that can cloud judgment as people rush back into the market. (Sense of urgency not unlike an After Thanksgiving sale rush to the doors)

When the masses realize we are at the bottom. competition will drive the prices up, multiple offers will happen, and it decreases your negotiating position.

Right now you can offer away........I am seeing investors moving slowly and methodically in this market, and they are buying up much of the inventory that people think is going to be there at the bottom.

I get the feeling that there are going to be a lot of very confused folks  wondering where the deals actually are when CNBC reports we have hit the bottom! LOL

My advice is this:

if you are looking for cash flow: Draft your business plan, decide what your goals are, and find properties that meet that criteria starting today.

You are in a FANTASTIC position right now........There is no sense of urgency, you will be in a position to make good decisions, buyers have the power of negotiating on their side, and you will find some great deals.

At the end of the day, equity based buying is still speculation, and a long term game. Cash flow investing is putting the pen to paper and finding properties that meet those numbers.

Ask yourself this question: Will a 10% equity increase/decrease really impact my cash flow by a significant amount?

Probably not....

The equity position is still speculative, and should be based on what I hope is a 5-10 year plan anyway.

Point to Ponder: 
Keep in mind that many people were trying to time the top of the market, and I think those profit/loss numbers speak for themselves. People always forget that it works the same in both directions.

BUY when the masses tell you not to.........SELL when the masses are buying!!!!

Mark N.A · Answer

I recently bought my 'obituary address' when it came on the market and paid almost full pop because I WANTED it for me.  I don't care what its monetary value is or will be because its intangible value to me is what counts.
            
            As for other investment properties, if they meet my criteria and CASH FLOW why would I pass them up?  I speak only from a long term buy and hold perspective on them.

John Andre · Answer

Also you will only know when the bottom is found, when the prices start back up. At that time, you and every other fence sitter will panic and chase the prices back up. Right now sellers want/need to sell. It is your, the buyers market, big time. Knock another 10 to 15% off the price, and you may not be competing with other buyers. But, you know when prices start go up, that day will cost you thousands. Is that day next week, next month or next year. Obama can not afford it to be next year. He is taxing us all he can to make it sooner. The magic question is how soon.