Buy now or wait given the economy/market?

12 Replies

I am looking for a condo in 150-180K range for my elderly parents (Phoenix metro, East Valley). The plan is to have them stay in it for a nominal rent, and keep the property as a buy and hold rental. Currently, they are staying with me at my house. 

However, I'm getting concerned with the state of the economy. The market volatility has been picking up, uncertainty on the political arena is concerning, plus the fact that the housing market in Phoenix has gone up to pre-recession levels. For example, the condo that I'm looking at was sold in 2012 for 50K, now selling for 150K. Throw the increased mortgage rates on top of that...

What would the pros recommend? Wait until the market volatility decreases and things shake out? Or buy now so that my parents have a place to live on their own?

Account Closed I read this chapter from The Best Real Estate Advice I Ever Received this morning... It made me think about the current market and your headline. 

"When In Doubt, Buy"

"The best real estate advice I ever had was "buy." When in doubt, buy."

"But don't speculate unless you are dead sure that the trend is up, up, and up. In a market that is going down or even iffy, speculators can get hurt. For example, if someone buys at a pre-construction price expecting to sell at market price when the property is built, and in the interim, the market goes down, the speculator may have to sell at a loss. If the speculator needs to put up more money than she has or than the bank will lend her, she will lose money. If the market goes down and she has to sell for any reason, she may lose money."

"But the buyer who is purchasing for his own use will almost always come out the winner. If he sells in a down market, he will get less; however, the trade-up property will cost less, so its a wash. If he sells in an up market, he'll get more; however, what he's buying with the proceeds will cost proportionately more as well. Theres no downside. You absolutely cant lose."

"The lesson is: buy it. If you don't have enough money, borrow it. Don't let the opportunity pass. Just do it. You'll never be sorry."

Even though this passage may not help, its great hearing a different perspective to help you think out of the box. My advice with your situation is this; just buy smart. Have you looked at government programs like Fannie Mae Homepath? 

When I say buy smart, I mean take into account the prices at the worst of the market. As you said 50k... So is there anything around that you can rehab? 

Account Closed For what it's worth, I work for a real estate podcast and we had an economist by trade (Peter Linneman) on the show for the first episode of 2018. He believes the real estate market shows no signs of slowing for 2018 or 2019... Doesn't get much more "pro" than that.

Originally posted by @Grant Rothenburger :

@Inga C. For what it's worth, I work for a real estate podcast and we had an economist by trade (Peter Linneman) on the show for the first episode of 2018. He believes the real estate market shows no signs of slowing for 2018 or 2019... Doesn't get much more "pro" than that.

 Would one expect for the housing market to follow the stock market eventually? The housing fundamentals may be high, but I'm concerned about the overall state of economy possibly affecting housing prices in the mid-term.

If you buy a deal that can't survive a correction, it's a bad deal.

if it's a good deal, buy it....buy it RIGHT NOW.

Passing on opportunity is FAR more risky than anything else.

Also, when a correction comes you want to be prepared, it's going to take EXPERIENCE. you need all of that you can possibly muster in the time before.

Originally posted by @Alexander Felice :

If you buy a deal that can't survive a correction, it's a bad deal.

if it's a good deal, buy it....buy it RIGHT NOW.

Passing on opportunity is FAR more risky than anything else.

Also, when a correction comes you want to be prepared, it's going to take EXPERIENCE. you need all of that you can possibly muster in the time before.

Since my parents would be residing in this condo initially, it would be likely fine during the correction if one happens, but since they are close to retirement it would behoove them to make the best possible decision for this purchase. That's why we're hesitating. 

@Account Closed Is there any reason it has to be a condo? Condos typically have higher interest rates on loans, are harder to sell/have more limited exit strategies etc.

During the last crisis Phoenix was hit very hard, especially condos I believe.

Any reason it can’t be a single family home? I’m not an expert in your market but some things to think about.

Rates will be going up so financing will be more expensive in say a year. I’d look at it from all angles.

The housing market shows good fundamentals and the stock market may go up or down, but until unemployment starts rising (a lot). I think the housing market will continue to thrive. From what I’ve read I think the housing market is solid for this year and next year. Beyond that it gets harder to say.

Inga C, you can message me. I have two rehabbed ranch condos in North Phoenix in a very good location near the 101 and not far from Desert Ridge. I just sold one today before closing he Unit could hit the MLS. The prior one I sold last month sold within hours after hitting the MLS. The next one will be ready on Thursday.

2 BR, 2 BA.  $150K.  White Shaker Kitchen Cabibets.  White Quartz Counters.  New tile back splash.  New walk in shower.  New Bath Vanities.  New flooring and carpets.  Stainless Steel Dishwasher and stove.  Many other upgrades.  863sf.  408 units in complex.  Fannie and Freddie financing available on these units. 

Monthly Costs:

HOA: $150

Taxes: $38

Insurance: $15 to $20 (HOA fee includes a blanket insurance policy).

Account Closed If you buy the condo and your parents can afford the mortgage and enjoy living there what difference does it make if there's a market correction?  It only matters if you try to sell.  The condo doesn't know what the market value is. Just don't tell it that's it's worth less than what you paid for it. lol  It's a place to live.  It's not worth worrying about. If it's a good deal today that's all you can ask for. 

It's great that you're taking care of your parents.  I hope my kids take care of me someday.

@Account Closed At a macro-level...these questions were plentiful in 2017, 2016, 2015, etc. I bet most people wish they bought all they could in 2015. I know I do 🤷🏻‍♂️ Will I feel the same way in 2019 or 2020? Hard to say. Nobody knows. Will a 2020 “correction” be a plateau? Will values drop down to 2018 prices or 2015 prices? Nobody knows.

Just find a deal you’d want to own for 20 years. If it meets that threshold they just buy it and roll with any ebbs and flows. If you “need to be out of it in 5 years” that could be a different story. It’s not my method so I don’t really think that way. Others will be better to give thoughts on that.

Thanks for replies, everyone. 

Went under contract yesterday. Not a great deal per se, but the area is growing with some cool millenial-oriented developments. Parents are happy :)

Originally posted by Account Closed:
Originally posted by @Grant Rothenburger:

Account Closed For what it's worth, I work for a real estate podcast and we had an economist by trade (Peter Linneman) on the show for the first episode of 2018. He believes the real estate market shows no signs of slowing for 2018 or 2019... Doesn't get much more "pro" than that.

 Would one expect for the housing market to follow the stock market eventually? The housing fundamentals may be high, but I'm concerned about the overall state of economy possibly affecting housing prices in the mid-term.

I'm flattered that you think can answer that lol. My philosophy is if you buy right and are conservative with your numbers, what happens to the market on a macro level is less important because you have protected yourself against a potential "crash". One reason I like MF, people will always need a place to live in the event they have to sell their home or whatever the case may be.

I'm not in the real estate industry, but I do work in the investment industry and have 10+ years of experience in investment valuation.  My opinion is that WHEN the next bear market hits the stock market, and when the interest rates creep up north, and when unemployment goes back up, based on the affordability relationship of figures, there should be a hit to the price of real estate.  I think Phoenix is an interesting spot because the x-factor is that people are moving there with an overflow from unaffordable spots like LA and Seattle.  Calculating how much potential buyers can afford monthly will bring down the median price.  I own a couple of properties in the Phoenix area, and I'm looking for another property, but IMO, people are asking a bit too much for their places.  I am starting to see sellers price their homes under the appraised values because it's been sitting there for a good 6 months.  Property transfers are slowing down, home flips are inflating figures at unjustifiable amounts, and quite frankly, Phoenix is a place where when a recession hits, companies start cutting jobs in backoffice functions first, many that reside here in town.  There just isn't fortune 500 companies that make their home in Phoenix and that relays to more of a up and down play of the long-term graph.  I don't think there is a bubble, and I believe real estate is not going to be the factor that turns the economy down, but when it does, it'll take the stock market down, and along with it, real estate.  There are some headwinds here where if you're stretching to buy a home, I'd consider renting that buying.  I don't see a great financial crisis moment, but I think you will see a 10-15% correction.  That $500K home people are sitting on, will probably be a $425K home in 2 years.  I think there will be a better entry point.  This is all just my opinion and I may be wrong, but I've seen this play out a few times in my life where people just don't think a recession is a possibility.  A recession is a healthy part of market cycle, and it will occur, and I think holding cash for a payment won't be such a bad idea. 

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