Why I’m Waiting Until After 2012 To Buy A Home

The real estate and mortgage industries are trying hard to convince us that NOW is a good time to buy a home. They use low mortgage interest rates and the soon to expire First-time Homebuyer Tax Credit program (which I qualify for since I’ve purposely been a renter for the last 6 years) as their rationale.

Don’t expect unbiased advice from salespeople! What most won’t fess up to is that if I (or you) buy a home now, we’ll likely be throwing our precious money away because home prices are still under great pressure. I’ll wait until the knife stops falling, thank you very much.

We are done with subprime resets but… pay attention… there is a second wave of mortgage resets to endure. What is a mortgage reset? It’s when the homeowner, who bought a house with a low “teaser rate” and planned to refinance when the house price went up, gets a new payment that is far higher (not always, but usually). Many homeowners can’t afford these resets, especially with unemployment and underemployment rates at these levels. Lenders are cautious and tightening their underwriting guidelines so refinancing may not even be possible for many borrowers.

The first wave of resets was subprime. The subprime wave is over. Whew! That hurt! But Alt-A and Option ARM resets aren’t over and combined, they represent a much larger category of mortgages than subprime. Most of these mortgages are already underwater: the home has negative equity; the home is worth less than the mortgage owed. The combination of resets plus the underwater status will likely add fuel to defaults and foreclosures, putting yet more downward pressure on home prices.

Some argue that the problem with adjustable rate mortgages resetting to higher payments isn’t as important now because many of those loans defaulted early. Even so, we still face the major problem of shadow inventory: distressed mortgages facing foreclosure and bank-repossessed properties that have not yet reached the market. At the current rate of sales, it could take almost 9 YEARS to sell off all the foreclosed homes in banks’ possession, plus all the homes likely to end up there over the next couple years (according to LPS Applied Analytics).

Another knife that has the potential of slashing home prices further is the increasing prevalence of walkaways (strategic defaults): the decision by the borrower to stop making payments on a mortgage despite having the financial ability to make the payments. Walkaways happen after a substantial drop in the house’s price. The borrower is underwater so she decides to free herself from the burden of mortgage debt. Once free of the mortgage, she is free to use her income for other expenditures. The borrower, after deciding to not make payments any more, can live free of the costs of mortgage payments until the lender forecloses — which may take the lender from several months to years!

A study in September 2009 from the credit reporting agency Experian and consulting outfit Oliver Wyman estimated that close to a fifth of troubled mortgages in the U.S. involved borrowers who were strategically defaulting. While I haven’t looked for a more recent statistic, I can only guess that this number will climb as more homeowners get mad at Wall Street and as walkaways become less morally and ethically charged.

I’ve been told by countless Realtors that I should buy a home NOW because having been a renter for the past 6 years, I qualify for the First-Time Homebuyer’s Tax Credit. But what do you think will happen to house prices once the tax credit incentive expires? I’d say houses will not sell as well as they have lately (with the credit artificially propping the market up) which will increase the supply of homes on the market… and push down on prices.

I’ve also been told by Realtors that I should buy a home NOW because mortgage interest rates are so low. But I don’t worry about rates because I have the cash to purchase our next home outright if the interest rates move up. Even if I did need a loan it wouldn’t change my mind because as Patrick Killelea astutely points out,

It is far better to pay a low price with a high interest rate than a high price with a low interest rate, even if the mortgage payment is the same either way.

  • Your property taxes will be lower with a low purchase price.
  • A low price gives you the ability to pay it all off instead of being a debt-slave for the rest of your life.
  • As interest rates fall from high to low, house prices increase.
  • Paying a high price now may trap you “under water”, meaning you’ll have a mortgage larger than the value of the house. Then you will not be able to refinance because there you’ll have no equity, and will not be able to sell without a loss. Even if you get a long-term fixed rate mortgage, when rates inevitably go up the value of your property will go down. Paying a low price minimizes your damage.

Additionally, if interest rates rise, the number of borrowers who can qualify for a higher mortgage payment will drop. Less qualified buyers in the market means… you got it… more downward pressure on home prices.

In summary, I see no rational or compelling reason to buy a home right now. 2012 or after? We’ll see!

Note: This post was featured in the most creative Carnival of Personal Finance I’ve ever read — check it out! The Origin of the Piggy Bank by Well-Heeled Blog

Don’t miss anything: Subscribe to receive free email or RSS notifications whenever I publish a new blog post. No spam, no risk, and it is easy to unsubscribe should you ever change your mind. Follow me on Twitter (@MillionMommyND) where I share interesting articles, opinions, quotes, tips and other bite-sized tidbits relevant to success, happiness and financial freedom.

Published by

Millionaire Mommy Next Door

A self-made millionaire shares her recipe for success, happiness and financial freedom.

90 thoughts on “Why I’m Waiting Until After 2012 To Buy A Home”

  1. Hi Jen Smith,
    I happy for all your success. It is very cool when people can overcome great hardship to be able to provide for themselves and others who they care about. At the end it really about the human touch . What use it the wealth without the hug and I ‘m glad your home :)

    good health and happinesss.

    PS your baby ia verrrry cute!!! what is her name?

  2. And another point that extends the pain. A large majority of all of these loans are variable rate meaning they will continue to adjust as interest rates adjust. The teaser rate reset hasn’t been that bad because interest rates have been so low. Imagine what happens as interest rates go up and those loans adjust again, and again, and again.

    Also to add another point cited by Mr. Killelea but not mentioned here. If you buy at a low price and a high interest rate you can always refinance at a lower interest rates if rates do ever fall again (and at the same time the value of your house will be increasing because of the interest rate drop).

    I also plan on renting until 2012…

    1. …just so you know, even ARM mortgages have caps on how much they can adjust in a year – and how much they can adjust in a lifetime. They really are a great product if people use them properly. I encourage you NOT to write them out of your tool box – when the time comes to buy, no matter what year it is in.

  3. Good points, but would like to add that subprime is not actually over. You see those little green dots in the 1st chart? Those are the next wave of subprime defaults. They are just not as high as before. Notice in 2011 they are about at the 15 billion level, and increase to 20 billion a month by mid year.

  4. Agreed on all points…and because of all you’ve mentioned, we’re waiting until about 2015 to sell. My partner and I would like to get off the East Coast but there’s no reason to even consider the possibility right now. That we’re the only folks in our area NOT upside-down on our mortgage is the only thing really going for us at the moment.

    1. Waiting till 2015 might not be a good idea if you look at the chart above, it shows that after 2012 homes are going to be worth even less then right now, matter afact houses will never be worth even what they are right now! If you are up side down now and you are not happy where you live or are paying more then you need to to be happy, then bail! Either do a short sale, or let it go back to the bank file bankrupcy and start saving as much as you can and pay cash for a house in 2015! Houses, according to the chart above will be so cheap and affordable by 2015 that all the smart people that bailed and filed will, if they were smart afterwards and lived below their means and saved the difference, will be able to pay cash for a house!! We offered to give our upside down house back and file BK which we were prepared to do and the bank modified our loan to 2% and out to 40 years… our payment is 75 % cheaper then before, matter afact it is less then a comfortable cheap apartment, we are still upside down but after reading this I think we made the right choice to stay, doesnt matter if you own and are making payments or if you rent, you are all renting anyways!! UNLESS YOU CAN PAY CASH we are all hosed!

      1. I am interested in what bank / program you used to successfully modify your loan to take you down to 2% and out to 40 years. 75% lower payment stopped me in my tracks. At least that makes living there affordable and possible for you to rent the place out if need be. I am fortunate to be living in a beach community in San Diego which has seen stable / inclining prices this year – we bought in June of 2011 after relocating from Japan. I needed the tax breaks, and the rental market here will always be in high demand, so I am comfortable with my decision. While the current costs may be 30% lower than they were 18 months ago, because of the sub-prime runup costs have far outpaced the rate of inflation, and thus remain artificially overpriced (IMHO). Having read this article, I am interested to see how markets such as San Diego and Hawaii react. Current market prices have outstripped inflation, though with limited commodities in these areas will prices hold fast? It seems that unless these communities are not insulated from the dynamics outlined in the article, prices would have to eventually fall. I have friends in Hawaii who believe that the banks there are trying to keep the number of foreclosures under the radar, or are not foreclosing to maintain the market … prices are unreal out there. I make well over six figures, and there is no way I could afford to buy a home there now without a down payment which would have paid cash for the entire home 10 years ago.

  5. Well the only compelling reason to buy now would be a hunch that market psychology in the USA has been successfully turned around. We all know that Americans are conditioned to believe that housing prices always go up… even now, 70% of Americans believe that. If the insane government interventions into the market convince enough investors that the future is up, there may be enough money still on the sidelines to keep prices stable or rising. If gov’t had not been intruding that would be much less of a factor. We also have to contend with the possibility that the gov’t will jump in again to prop up prices when they sense weakness. And it’s impossible to predict just how they will do it. Our gov’t has no qualms about transferring enormous wealth to property owners from taxpayers at large. Insane but true.

  6. I am the Multi-Millionaire Single Hawaiian next door. I did dive $100k cars, MB BMW Porsche, etc. WASTE of cash and a magnet for SCUM! I sold 198 properties from 2000-2008 and made a Killing as an owner investor! My average profit was 1167% (gross). Now I’m buying land slowly, about 300-500 acres a month for the next 50 months! My goal is to own 20-25,000 acres of California land while Obama “fixes” the economy then join the Domestic Forbes 1000! Always buy low and sell high! California’s real estate cycle is 8-10 years up or down! Same since the 1950’s

    1. OK but if you held on to any of that property that you bought from 2000 – 2008 you are sitting in a huge whole! Even if you bought low it was high! The chart above shows that even if you buy now it low, it still wont be worth what you paid for it , unless you flipped it fast back then and paid cash for everything you own now then you got hosed too…. I’d be careful if you own everything cash now to continue to buy investment property especially in California, mother nature is making her self known in a big way and Cali is her favorite play ground! You would be best to invest in US oil, medical companies or big rig tractors and equptment needed to clean up after all the deasters that are to come in the US as mother nature sets off on a century of destruction! The people making money will be those who invested in stuff and skills to rebuild and care for the people and towns that are going to be destroyed, just saying, mock my words what mother nature does to the other side of the world is just a warning to what she will do here and we need to get prepared and pull our heads out of the fantacy of money and fame, it has been predicted for millions of years of the mass distructions that will happen in the last days and I am here to tell you that the writting is on the wall! We are in the last days and we had ALL even the rich need to realize that things are not going to get better, and the government will alway pay to put cities back together because without cities and people the need for business is nonexistent!

  7. Non-recourse states:

    North Carolina
    North Dakota

    Here in Cali there are lots of people doing strategic defaults. I personally know multiple people who stopped paying on their mortgage 6 months, 12 months, 18 months ago… and are just waiting for the bank to get around to them… living rent free! Mortgage free! And when they do finally get pushed out, they will owe the bank nothing.

    On the other hand, here in Cali, Prop 13 gives people who have owned for a long time a HUGE incentive never to sell.

    Horrible horrible horrible policy. All of it.

      1. Texas is on the list for non recourse, but Texas is what is known as JUDGE RULED, in other words its how the judge feels that day, and about your individual case, so I would not call it non recourse, the lenders are going after foulks here like crazy, and if you ever own anything of value they can get a lein against it and take it…. dont ever think in Texas you can walk away from a home and the courts wont do anything…..

  8. I agree completely! Realtors will always say it’s a great time to buy. But, folks, it’s not. I’m waiting.

  9. I’m a consumer bankruptcy attorney in Colorado and I always have to pipe in when someone mentions strategic defaults without mentioning deficiency judgments. In most states, including Colorado, walking away from your home is walking into bankruptcy. The lender can sure you for what you left behind, the difference between what you owe and what they got at foreclosure (which for basically all second mortgage lenders is Zero). They can also wait until the statute of limitations period is almost over. Here that is six years! So anyone considering walking away must know that they can be sued for the deficiency.

    Lenders are packaging these debts and selling them to collections right this second. They will be coming for you.

    p.s. I am also a renter by choice. Feels good to be an observer right now, that’s for sure.

    1. I cant imagine that anyone would walk away from their homes and not file bankrupcy, if they do a short sale, and dont come after them for the difference, some states they cant, they take their loss on to your income and you pay taxes on that amount! My difference would be in the 100k’s! Taxes I would have to pay on that amount would be more then we make a year! So if it gets to be to much for us… we file BK before they forclose so they cant tack the difference onto our income! Life is proving to be about happiness and not about money and fame! Its about if you are souly sencerely happy in the home you are in, if living in it allows you the the freedom to go and do and see and be with and who really makes you happy… Life is too short and as you get older you realize that more and more, the economy is making everyone realize that, the more educated you are the more logical you think and the less emotion you put it to money. It doesnt matter how big your house is or what kind of car you drive once you go to heaven, there, you are only left with who you loved and what you did to help others…. nothing else will have mattered!

  10. Not all Realtors will say it’s always a great time to buy, I do not. However, it is a good time to buy a distressed property in the lower middle class to upper middle class neighborhoods. For all of the reasons mentioned above, this makes sense. The issue is when economists speak in generalities and averages and fail to take into account the specifics of a marketplace. Does everyone really believe that the most desirable area of a city will experience depressed prices for the next several years as a whole? It’s simply not possible unless you believe that 100% of the people in that geographic area are uniformly affect the same way. If you are a potential buyer who is considering the best areas of your town, you need to be bird dogging now, not waiting.

  11. Your argument and data nailed it.

    Two questions for you to consider in future posts:

    1. When, and under what conditions, will some real estate agents start defecting from the artificially high prices so as to get some sale, ANY sale?

    2. Why can’t you approach the seller directly with your offer and your reasoning? it may be a healthy dose of reality for the seller (and real estate agent), and also get them out of a painful (and pointless) waiting game.

    1. You can approach the owner if you can find them, there isnt a law that stops you, but the owner, if they signed a certain type of real estate agreement when they listed the property will have to pay the 3-10% commission even if they sell it themselves…. even after 6 months of the listing expiring! So if you make a owner who has a Real estate agents sign in the yard a offer, be prepared to pay that Realtor her commisions…. The best route would be to one; find a house for sale with a buy owner sign in the yard, two; or go to buy owner .com and find one, or three; send out a flyer to the neighborhoods you want to buy in asking any of them that would be willing to sell by owner for the right price to call you – sounds funny but you never know, but I can tell you one thing you have to spend money to buy a house and Im not talking about on the house, there is always fees and commission attached thats life! You could also send out flyers in the same neighborhood asking if anyone is facing forclosure to call you first, then you get them to tell their mortgage company they have permission to talk to you and you can negotiate directly with them for the house! Lots of work, but as a Real Estate agent dealing with short sales that is how the agent earns her money!

  12. I wish their were more articles like this in the biased mainstream media. My wife and I have been home shopping in the Silicon Valley for the past 3 years (pre and post housing crash) and have been to at least 200 open houses. Every agent we’ve talked to states it’s a great time to buy because blah blah blah. They will say anything to get you to buy the home.

  13. This was a great post. I got the link from Patrick.net. I hope to read more from you in the future on the subject of housing.

    I have found that most Realtors in Southern California are very poorly trained, and have little to no clue about economics and home finance themselves. So it’s a lot of fun to watch them squirm when you challenge them on their urgent appeal to buy now – particularly the “all-time low interest rates!” sales tactic. Actually, if you think about, “all-time low interest rates” should be the last sales pitch ever mentioned by a Realtor, if at all. I’m convinced that they simply don’t understand how relational economics and finance can be. A change in one variable can dramatically affect several others.

    This is biggest purchase in a family’s lifetime, so you would think that an army of sales people association with the National Association of Realtors would want to help consumers get it right and not screw it up.

    I would much prefer Realtors in the US to simply say to prospective buyers the following: “Buy Now So I Can Feed My Kids And Put Them Through College….”.

    That would be a more genuine and honest approach.

  14. Oh but I AM bird dogging now, Grant in Nashville. In fact, I have been making offers. But the Realtors in my area are behaving VERY BADLY. Read this post for one such example:

    I’ll share another true story soon…

    I am armed with knowledge and know what makes financial sense. I make my offers accordingly. One day (probably after 2012), my realistic offer(s) will match the market. Until such time, I am truly a HAPPY RENTER!

    Some of my friends are Realtors. They are very nice people. But honestly, they don’t have a clue about what I’ve written in this post.

  15. Seems to be a lot of Realtor bashing going on in here. What I don’t understand is why there is a prevailing belief that banks are not working with the option ARM owners? Many of the larger and most of the smaller banks are proactively contacting those owners and offering no cost refinances to fixed 30 year mortgages. These banks cannot withstand another subprime devaluation and are making sure this does not occur.

    I am certainly not advocating a blanket “now is the time to buy’ statement; however, there are instances where this period of time represents your best chance at buying a premier home in a premier neighborhood at a discount. Obviously, if you are buying little $100,000 and $150,000 properties, there will be plenty of those to be had at lower prices for decades to come, but for the premier upper middle class properties, I’m not so sure you are not shooting yourself in the foot by not bird dogging now. Always be diligently looking and never be 100% dismissive.

  16. I am sorry to hear that those undereducated folks are giving the industry a bad name. Not to worry though, most of the bad ones will be out of the business by the end of the year. Just being nice does not cut it in this business any longer, no offense to your friends.

  17. Jen, you make very good points.

    The charts you post tell the story. With so many not being able to make their payments, especially here in CA, strategic defaults, unemployment, underemployment, and there’s probably other reasons, now is not the time to buy a house.

    I got laughed at the other day by my next door neighbor professional money adviser. I told him I have all my money in gold. What a simpleton I am.

    The numbers are staring at you, yet you’re told that the economy is getting better. Do you believe the MSM or what common sense tells you?

  18. When you include this with the high probability of the economy staying flatlined or declining again (we are currently on pace to have more banks closing this year than in 2009 or 2008) and the very high probability of the Chinese real estate market tanking (talk about overheated) it’s hard to see how any economic event is going to be significantly positive enough to help turn the real estate trend around in the next few years.

    Good buys on premiere upper middle class properties are probably available in some areas, but why would you want them?

    Given the risk factors still present in the economy you could easily find yourself without a job over the next few years. Thus, adding any type of debt let alone multiple $100’s of thousands for a McMansion is a huge risk factor for anyone. Not to mention the giant increase in your energy usage for these monstrosities as we move into an era of higher commodity prices (long-term, not necessarily short-term).

    You also have to assume that local governments, given their current cash poor status, will be raising local taxes. Thus, your housing costs will increase more with a larger upper middleclass house.

    Also, do you really want a 30 year mortgage for a giant house, or should I say 30 years of enslavement? The majority of people can’t afford to get a 10-15 year loan on a house in the upper middleclass area.

    Real estate agent bashing is going on because it’s deserved. The few good ones get drowned out by all the bad ones. And, even the good ones, because of the system, having opposing priorities when compared to the home buyer.

    I can’t count how many times over the last 2-3 years NAR (National Association of Realtors), who is paid for by real estate agents, has used a month to month increase as proof the real estate market had recovered and everything is normal. Of course, they know perfectly well that seasonal adjustments, an artificial tax break, etc. were the cause, and not a housing rebound. See the link below for one example.


    Maybe you are a trully good agent (I’m sure there are some), but I have no way of determining that (nor does anyone else). The only way buyers can be safe is to treat all agents as if they are equally bad.

  19. @ Grant
    “several reasons you would want to own a premier property (not defined as a McMansion). The public school system, proximity to your work or areas of town you frequent, convenience, views, larger yard for your children, etc.”

    Agreed, but you can also get these through renting. It is still cheaper to rent and invest the difference than to buy in many parts of the country (suggesting home prices can still fall). And, renting lowers your overall risk profile, which is a nice bonus when there is a massive amount of uncertainty in the economy.

    “I would inject that the majority of seasoned agents are not bad. I am one of them.”

    You might be correct. However, a buyer should never work under the assumption that the agent is good. To be safe they should always assume the agent is bad. This applies to any profession whose entire job is to sell you something, and especially to a profession who makes more money the more (number or dollar figure) they sell (Goldman Sachs is a prime example). Thus, the recommendation to hire fee-only certified financial planners. In this instance guilty until proven innocent is the best policy for a buyer.

  20. @Chad There are several reasons you would want to own a premier property (not defined as a McMansion). The public school system, proximity to your work or areas of town you frequent, convenience, views, larger yard for your children, etc. Most people don’t buy a property just because they can.

    I would inject that the majority of seasoned agents are not bad. I am one of them: http://www.granthammond.com/2010/homes/real-estate-tax-credit-nashville-homes-sales-soar

  21. @Marcus @Chad Assume all agents are bad? Are you serious? How about you choose one with the proper designations, education and resume rather than assume they’re all bad and “see what happens” to prove otherwise.

    The bankers, Wall Street and Bill Clinton are too blame for the housing mess. Realtors just sold more houses. They didnt create financial vehicles and policies enabling people who should have never bought houses “the right” to home ownership.

    Home ownership, like health insurance, is not a God given right. Both are to be earned and quite frankly not everyone deserves either.

    Thank Bill Clinton for the “everyone deserves to own a home” fantasy that started us down the slippery slope.

  22. Actually, the free market had been allowed outside of the yard for the first time since the Great Depression and it went wild. It needs someone to hold on to it’s leash or put one hand behind it’s back. The free market is not a religion or panacea. It is just a tool like anything else.

    All of this being said the buyer still has to shoulder some of the responsibility along with the realtors, Wall Street, and the Fed for causing this. I by no means blame a 100% on the realtors.

    I would argue it was fairly easy to predict. MMQB essentially predicted it. I did (why I’m still renting and why I pulled most of my money out of the market before the dive). Ritholtz at The Big Picture did…etc. It wasn’t hard when I had a better paying job than 80% of my college educated friends (we are in our mid-30’s) and back of the napkin calculations made renting seem virtually free when compared to buying.

  23. I suppose that is one assumption that could save you some heartache, but you can certainly alleviate your fears through thorough research. It’s the classic glass half empty or full question. Either way, you need more liquid and in this case, more liquid is synonymous with more knowledge and understanding. That is where a more seasoned agent who is financially stable can help. We are not living commission check to commission check and will give you fair, balanced and equitable advice. Again, just like within every single profession in the United States, there are great people, good people, average people, mediocre and bad.

  24. I just want to say I agree 100% with ever word that Chad wrote above.

    It will be a long time before Realtors in the United States ever live this down.
    When it comes family bankruptcies and foreclosure, people have long memories about the players involved, including the Realtors who sold them up a river and cashed the commission checks.

    I live in Orange County Southern California and let me say that you would not believe the way Realtors behave out here even today, when all around them are the products of their labors: foreclosure signs, repos and bankruptcies. At spring track meets, T-ball games and the local YMCA swimming pool, I’m sure Realtors here must think often about accidentally bumping into their SFH clients from 2004-2007. What should they say to those people? “Aren’t you glad you listened to me when I said “Now’s a great time to buy”, “Buy now or be priced out forever!” and “Interest rates have never been so low! ?”

    It’s the kind of stuff straight out of a Woody Allen comedy.

    What I find most interesting? That Realtors in the USA are now shifting blame to “Wall Street”, rather than taking inventory of their own published statistics, financial advice and ad campaigns over the last 5 to 6 years.

  25. @ Markus Holy resentment Batman. Please explain to me how Realtors alone, the salespeople in the transaction, were able to do all that you say?

    Markets are cyclical and almost no one in the world was able to predict the housing crash with any accuracy beyond a few insiders. In order to build a housing market in this country it is a little like baking and selling an elaborate cake. There are dozens of ingredients, very specific and timely steps that must be followed and once complete, a sales transaction. It would be incorrect to assign so much blame to the person at the counter who sold you the ill tasting cake when the baker and ingredients were the most instrumental part. Unless you were all out coerced into a purchase by your agent, I cannot see why you harbor so much resentment.

    Granted, there was an oversell in process during the boom. Agents got very good at making homeownership sexy and seemingly risk free, but no rational adult bought this marketing campaign hook, line and sinker. Every buyer was well aware that no housing market could not continue to appreciate indefinitely, but absolutely no one knew what was brewing below the surface with the financial markets. I hate to mostly disagree, but the housing market would not have crashed as it did has the Fed done its job, mortgage regulars has done their jobs and has greed not been allow to spread so rampant throughout the system. Instead, the housing market would have most likely experienced slow, rational growth with no boom or bust. Simply put, the free market economy had one hand tied behind its back and no one told the general public. No one whistle blew and very few were even paying attention. Agents become order takers and buyers lined out without any prompting.

  26. There WERE people who predicted the housing crash from respected, published authors to little ‘ol me.

    Grant, you obviously weren’t a reader of my old blog years ago when every time I’d present the data that had “impending housing crash” written all over it, I’d be blasted in the comments for being so “irresponsible” to suggest that renting was a viable – and prudent – alternative.

    I’ve had many conversations with people in the real estate and mortgage industries over the past 6 years and what I’ve concluded is that these salespersons have been sold a bag of crap from their higher-ups (i.e. NAR propoganda). They simply couldn’t see things any other way. Realtors were/are as gullible as the people they sold homes to.

    You wrote, “but no rational adult bought this marketing campaign hook, line and sinker. Every buyer was well aware that no housing market could not continue to appreciate indefinitely…” I wholeheartedly disagree. Many of my personal friends are stuck underwater, facing foreclosure, etc. ALL of them feel blindsided by this depreciation. They were all told by their Realtor (and they believed it) that home prices might stop appreciating at such breakneck speed but they would never go down; homeownership is a great investment; renting is throwing your money away; yadda yadda… you know the drill.

    I remain hopeful that this economic crisis will impress on people to THINK THINGS THROUGH FOR THEMSELVES, and to be wary of where and from who they take advice. I hope financial reform takes place, but even still, learn to question everything because wherever the big money is, greed and deception find a way in.

  27. @Grant in Nashville,
    You are wrong that nobody predicted the housing crash in America. There were many voices back in 2002 and later pleading (begging) people to come around to the reality that current home prices were unsustainable given take home incomes, but they were scoffed and laughed at during that time. Particularly by Realtors.

    I’ve been a renter since returning to the US from Europe in 2005. It’s 2010, the crash is not over here in CA. Today I’m in better shape financially because of it. I wish I could say the same for my neighbors and the local communities here. Hell, even the state of California doesn’t know what to do with the lack of property tax payments coming in and with school teachers going on strike. I don’t know when or even if things will ever get back to the way they once were.

    I never said that Realtors are to blame for it all. There was a lot of irrational exuberance and irresponsible lending and borrowing, to be sure. But my point is this: Beliefs form our actions, including the actions of real estate buyers. My problem as a prospective buyer facing the real estate industry today is that here we have massive associations like the NAR and CAR members flouting their industry expertise and proclaiming “trusted advisor” status to real estate consumers everywhere, but not being intellectually honest about the true circumstances of the market which were present between 2003 and even up to today. American Realtors knew about this rampant irresponsible borrowing (and purchasing) , but did not warn against it at all. Instead they cheerleaded more of it, and used it to stoke similar behavior and even fear in the market (“Buy now or be priced out forever!”). I just don’t understand how Realtors can reconcile the actions of the industry organizations (Watch the Century 21 Commercial “Suzanne Researched This”) they belong to with the obvious results that we see all around us. I guess I’m looking for a response like: “Well, that worked out poorly. Maybe we should change the way we do things.”. But that realization is not happening with NAR,CAR and Realtors for some reason. It never will.

    You’re completely right that buyers carry the load of the responsibility and the rule of thumb should always be “caveat emptor”. But this does not excuse the NAR, CAR and Realtors from their responsibilities either as trusted industry leaders and sources of market information for consumers. You can’t have it both ways.

    I know where the interests for the NAR and CAR lie (and those of the members who fund them). Many prospective buyers in America are still naive about this, and will buy and believe everything a David Lereah, Lawrence Yun or a local Realtor has to say about local real estate trends and buying a house in their local community.

    There are probably a few good realtors out there too who told prospective clients “not yet”. But this is not what the NAR has said, and is still saying in 2010. It is also not what the CAR has said, and is still saying in 2010.

    Realtors implore consumers to make the biggest purchase of their lives now, regardless. Not next month. Not even next year. Right now. It’s always a good time to purchase a house right now. Why? Because that’s when Realtors get paid. This may not be right or wrong. It’s business and just the way it is. As long as prospective buyers understand this truth, then they know where they stand, can take Realtor counsel on either side (buyer’s or seller’s agent) with a massive grain of salt, and take appropriate steps to do their own research and make informed decisions on their own. This doesn’t make Realtors any more trustworthy, if you ask me, and it doesn’t make the process of buying a home any less unpleasant either.

  28. Grant:

    Boomers are the generation that really fell hard for realtors(TM) and their spin.

    I am happy to let you know that X’ers and Millennials are not that way and we are “on to” real estate agents along with everything they represent: promoting commission-based greed, optimizing seller greed, encouraging appraiser misrepresentations, engaging in tiresome “happy-talk,” and possessing a pathological level of optimism in the face of contrary economic evidence.

  29. @ Scarlette

    “Encouraging appraiser misrepresentations” – how is this even possible? Lenders must choose an appraiser from a blind pool and Realtors never speak with appraisers. I’m not so sure I understand this critical view. Just curious at how low my profession has dropped – do you feel the same way about car sales persons and insurance sales persons as you do about Realtors?

  30. I realize you might have been asking Scarlette, but I’m going to give my view too.

    Yes, I feel the same way about realtors as I do about used car sales persons, insurance sales persons, mortgage sales, stock brokers, bankers (Wall Street kind), etc. All of these professions are supposed to be sales people, but they are also supposed to be well informed road blocks for the foolish. Unfortunately, I think the majority of the people in these professions have given up being well informed road blocks (most aren’t even well informed, let alone good advisors) and are now just pure sales. The buyer has a responsibility to protect themselves, but the professionals listed above have a responsibility to protect society. Those professionals failed utterly in protecting our society over the last 10-15 years.

  31. @Chad I can agree that a certain percentage of people in my profession have defaulted to simple order takers, but I don’t believe that about the vast majority, especially when you talk about the seasoned agents. I hate to say it, but the majority of agents who I consider to be the least responsible are the younger generation agents who are simply wowed by larger commissions (taking out the financially desperate agents from all groups, of course).

  32. You might be right that younger realtors are the majority of the problem. But, it’s amazing how the “other” demographic, be it older, younger, foreigners, democrats, republicans, etc. is always the cause. I would guess the part of the fininacial evil that can be assigned to realtors was fairly evenly spread with a slight tilt to any realtors who had just started at the end of the bubble (new realtors, not necessarily younger). Of course, the people just getting in were doing bad things, as they were copying what had already been going on for 10 years.

    You can spin it however you want, and you personally might have done right by your clients (I’m inclined to believe you), but given the massive amount of money associated with houses and mortgages that did not fit the buyers, the realtor’s part of the problem could not have been concentrated in just one demographic within the profession. Especially, in places like Vegas, Southern Cal, or Florida.

  33. As I am not in one of those markets, I cannot speak to what tactics were used or what the average level of professionalism was, but I concede that almost all for profit systems in the US were out of wack in 2005-2006. Arguing the point may be a bit like tilting at windmills in this forum, but I still maintain that many Realtors are not as evil as you may believe. However, I will also say that everyone seemed to be much happier back then, even with a half wit President.

  34. Grant’s question is an interesting one and I think the comment by Scarlet about changing demographics is important.

    In the context of residential real estate market, I do think the next generation will pose more questions about the value proposition of Realtors and whether the NAR/Realtor business model is a good for consumers.

    The biggest problem for me as a prospective buyer of residential real estate in 2010 is that I simply don’t understand how I can have a high level confidence in my agent (buyer’s agent) when I know that his/her compensation is directly linked to the transaction value of the home that I’m going to pay for. The higher price I pay, the more their earned commission for my representative agent. This compensation model might be OK when I’m buying a couple of suits at a clothing store. But when it comes to a huge, long-term expenditure like housing, there’s a lot more at stake for me as the buyer (caveat emptor!). Plus today I can do all the research I want on line for the houses I like and wish to view in a certain area. I can see virtually all or most of the comps. I can see sales history, as well as foreclosure and even specific lending data detail. The only thing I might need a realtor for is drafting an offer, for which I could easily hire a local licensed real estate attorney for a flat fee – and a fraction of the Realtor commission cost. Suddenly I’m far more confident in the representation of my interests, which are tied to a measly flat fee, and not an amount relational to the sale price.

    This is a problem if people like me don’t understand the value Realtors provide.

    If Realtor representation were more certain, and they were paid a flat fee for their professional services, I think my perceptions would be different. I think it would be more fair and straight-forward and build consumer confidence.

    As it is today, a Realtor is paid more money to sell a $500,000 versus a $850,000 home, but the cost of goods behind such representation is almost always the same, or could be even less. So why are consumers charged more for the same level of services? Realtors simply cannot prove that the cost of representation is 40% higher or that the value they provide is 40% more for a higher priced listing. Color glossy brochures versus black and white photocopies just doesn’t cut it as an explanation.

    I think Scarlet’s right. The Baby Boomers simply don’t question what came before. They’re too busy figuring out the “internets”. The next generation of Americans is probably going to ask more poignant questions like “what are buggy whip sales people doing at an electronic car dealership?”

  35. As a Gen Xer I’m not so sure my generation or the ones younger than me have the Realtors or the system figured out (I do of course! :). They/we appear to be just as dumb as everyone else. However, the younger generations do seem to embrace change more. This is probably because they grew up with so much more change (covered ad nauseam over the last decade). I do think they are asking, “what are buggy whip sales people doing at an electronic car dealership?” But, I don’t think they know why they are asking it, which causes its own problems.

  36. @Chad – you bring up a very important distinction. The younger generation is asking a ton of questions, they are raging against the establishment, but for the most part, they are not only not sure why, but more importantly, they don’t have the solutions. The Internet has been the best thing to ever happen to real estate. It has brought transparency, the ability to compare properties more easily and made shopping for real estate much easier. What it has not done to make everyone an instant real estate law expert, contract law expert or process expert.

    It’s wonderful that the younger and older generation alike are empowered with the ability to compare more properties, but the vast majority have no idea if their State is a lien theory State or a title theory State and how that affects their transaction. They have no idea what their State’s right of redemption period is, what a prescriptive easement could do or how to drill down through the hyper-local news to what’s real and not real. Do you really think that all Yelp reviews are real? You need to have boots on the ground and to know the players involved in order to optimize your transaction and that simply is not possible via the Internet or via some flat fee mill.

    Realtors provide a service, a service that should save you time, headaches, heartaches, provide protection, guidance and help you make the best decisions. You need to choose an agent who can best provide you with this service. You should be interviewing agents, ask them the tough questions and then choose whether or not you should move forward with this person. Don’t settle for someone just because they are in your friend circle or because they are nice. Choose a Realtor the same way you would choose a heart surgeon.

  37. “You need to have boots on the ground and to know the players involved in order to optimize your transaction and that simply is not possible via the Internet or via some flat fee mill.”

    That sounds good, but it doesn’t actually mean anything. Just euphemisms. If I already know what similar houses are selling for, and have sold for, and I can familiarize myself with the neighborhood, what is a real estate agent bringing to the table that a flat-fee real estate attorney isn’t? I can handle the finances myself.

    Plus, I have no idea why I would have to pay a real estate agent more for $300k house than I would for a $260k house. It’s not like that extra 200 square feet was built by the agent or the better school disctrict was created by the agent. My point being that the value they bring to the cheaper house would be the same they bring to the more expensive house.

    “What it has not done to make everyone an instant real estate law expert, contract law expert or process expert.”

    True, but why not just hire a flat fee lawyer to do the documents?

    “You should be interviewing agents, ask them the tough questions and then choose whether or not you should move forward with this person.”

    This is all well and good, but the good agents and the purposefully bad agents are going to give you the same answers. You would weed out the idiots, but not the ones willing to sell anything any way.

  38. Impasse? I keep basically asking why I need a realtor and you basically keep saying, “you just do, trust me.”

    I agree completely on buying better quality. I’m just not seeing the better quality a realtor brings. You keep telling me they provide more, but never telling me what this “more” is. After a realtor tells me about the neighborhood and what other similar houses are selling for, both of which I can find out for myself, what is a realtor giving me (assuming I hire an attorney for the paperwork)?

    Maybe a realtor is worth paying for, but it should still be a flat fee. I definitely don’t see how a big house/more expensive house all of sudden makes the realtor provide a higher quality service, while the cheaper house lowers their service. An extra bedroom and bath gives them special powers?

  39. @ Chad, it appears that our theories about paying more for superior service are at an impasse. Yes, you can pay someone a flat fee and get adequate service, but you’ll get what you pay for. I’m the type of person who will always use the $400/hr attorney to represent me in all matters, I pay for the best and expect the best. I could just got to Joe Blow and let them go through the motions with risk, but choose better for myself. A Yugo would get me from point A to point B, but I choose to pay more for a much larger and safer vehicle. http://www.granthammond.com/2010/featured/youre-cash-buyer-friggin/

  40. You do realize that buyers do not pay their Realtors, correct? The buyers agent’s compensation is paid by the seller from a pre-negotiated commission amount before you, the buyer, ever arrive on the scene.

  41. You do realize that buyers were not born yesterday, correct?
    Would this “pre-negotiated commission amount” of commission the seller supposedly pays before I, as a buyer, “arrive on the scene” be a fixed dollar amount? Is everyone including the buyer crystal clear as to the exact amount of sales commission that will be paid?

    Why no, the sales commission is a percentage figure, relational to the sale price of the house. So whether the percentage is 6% or discounted down to 4% AND pre-negotiated way ahead of time is completely and utterly irrelevant. As a buyer I hire a real estate agent, who is purportedly bound to represent my interest in the procurement, yet that same hired agent will earn more sales commission when the transacted amount is the exact opposite of my interests (a higher home price) every single time. I mean, you just can’t make this stuff up. The game is rigged before it starts. And let’s make no mistake here. Nobody gets jack or squat until the Buyer decides and actually buys. So BUYERS pay realtor commissions.

  42. @ Bill F.,
    FYI Clinton may have started the “National Homeownership Strategy” in 1994, but it was continued with vigor under the administration of George W. Bush and called the “Ownership Society”.

    I’m sure both prayed on the subject and deduced that indeed owning a home must be a “God given right”, or something. Either way it’s a well-documented and long-standing tenet of conservative policy for many years to promote financial independence, so most Republicans would probably be flattered that a liberal like Clinton would ever consider it.

  43. In the last 6 months I have closed-bought almost 20 purchase escrows of land for under 5% of what I sold the acres for form 2000 to 2008. Agents are like SAND/ROCKS in the gears! They only make it TOUGHER!!! AKA I am purchasing back the land (nearby) for 1-5 cents on the dollar! When i do sell, at say $2.00 vs. $1, the gross profits will be from 3900% to 19,900%! Only Einstein would understand the “CALCULUS” type returns I get. From 2000-2008 my 198 sales averaged 1167% gross, 23.65 months average hold & 49.22% Average monthly gross profit. 198 x 1167% = 231,066% total gross returns for the 2000-2009 decade! I think 2015-2025 decade will yield 4x as much, or about 1 million % gross return to me! University of Hawaii College of Business Finance & Real Estate Degree, thank you! 4 semesters of Calculus, wasted! 4 semesters of Business Stats. & 8 semesters of finance, accounting & banking, wooooo hoooo!!! Real Estate development & management classes, c- return on my money. CCIM 1995 certification? Well it basically “copied” my Finance/Real Estate management classes! But, 600 level finance class! Wow, the math was great! Money grows like a virus, fungus, and “oil rig slick” if you buy your investments for almost FREE! Old rule, buy super low, sell at the top of the value curve to the “foolish”.

  44. One thing that really disturbs me about residential real estate agency is that it is rife with conflicts of interest. If I’m effectively paying someone 3% of the purchase price to represent me as a buyer, he makes MORE if I pay more for the house! Could there be a more blatant conflict of interest?

    So I changed the compensation arrangement… significantly. According to my contract, my non-exclusive agent is entitled to 1% of the purchase price PLUS 10% of the difference between the asking price and what the broker has negotiated. So, if we see a house that is listed at $1,000,000 and I end up paying $800,000 for it, the broker will receive 1% of $800,000 and 10% of $200,000, a total of $28,000. If he gets me that much of a discount, he deserves every penny of his commission. Then again, he’ll earn even more if he bargains harder.

    I also did away with dual agency arrangements. I don’t want my broker representing the seller (unless I’m sure he’s working in my interest alone) and I don’t want my broker representing other buyers vying for the same property. So my contract requires disclosure and a signed agreement for any dual agency. It also includes a liquidated damages clause in case the broker decides that the dual agency doesn’t have to be disclosed.

    Feel free to use it: http://docs.google.com/Doc?id=dfj3rzgz_0hh3rf6

  45. @ Markus – It must be wonderful to live in such an idealistic world. The seller has already agreed to pay their listing broker a fixed percentage and that seller and broker have agreed to compensate any buyer’s agent a fixed percentage. How exactly do you propose to completely change the commission structure? In your senario, would sellers now be responsible for 100% of the advertising costs since you are now paying the buyer’s agent directly? How do you now motivate the seller’s agent to get highest and best dollar?

  46. @ Grant in Nashville-

    R.E. agents are now simply unneeded intermediaries. We can live without them and as a buyer/seller…profit from their removal. It is a win-win to transact the sale without them. The age of the internet has turned agents into dinosaurs that are soon to be extinct.


  47. @ Bill F
    The percent of government encouraged loans to low income people only make up 15-17% of the total problem loans. So, it is part of it, but by no means is it one of the major issues or causes for the collapse.

    Yes, I realize the seller pays, but you can’t tell me that hasn’t been factored into the price. So, give me the benefits an agent can provide to either the buyer or seller, that they can’t with a reasonable amount of work/research do themselves?

  48. @Grant
    I may be idealistic, but I can tell you that there are many, many prospective buyers just like me that are just as jaded about their observations of the real estate market in America these last 7 or 8 years. I think it’s good for us all to ask questions and understand the answers.

    Like most consumers of services in this country, I am willing to pay (and pay handsomely) for value. If I don’t experience value, then I’m probably going to question what the hell is going on. Am I experiencing less value than before, no value, or is there some kind of market inefficiency going on preventing me from the value I want?

    With Realtors so far my experience (as a prospective buyer in Southern Cal) is that they provide very little value with the exception of perhaps very unique local markets, market niches, or with filling out real estate procurement forms. Today prospective buyers can do a lot of the heavy lifting all by themselves.

    For buyers agents I would like to see a flat fee payment structure, not a sales commission related to the transaction value. The reasons for this I’ve already stated earlier.

    For sellers agents, there’s an argument for flat fees also, since the factors that go into achieving a top dollar sale on a home are dependent upon local net incomes, income/debt ratio of prospective buyers, access to mortgage financing, comparable home sales prices in the area, home inventories, foreclosure moratoriums, federal and state tax credits, etc. These factors have absolutely zero to do with a Realtor’s purported sales prowess, ability to upsell a certain home’s features and benefits, or even personal “motivation”.

    That said, I’m sure there are sellers who are “motivated” to the point where they may wish to part with a percentage of the sales proceeds with a successful Realtor. They may observe value in expediency or “top dollar” service. That would be their prerogative. But today home sellers are paying Realtor commissions more as a product of going through the motions and because “that’s they way it’s always been done”, not necessarily as a product of true, realized value in a largely inefficient market. I go back to the example of a seller’s agent representing a $500K listing and a $200K listing. In the first instance, the sales commission is $15,000, in the second it’s $6,000. That’s a lot of money. And why? What incremental value was delivered by the Realtor on either instance? What’s so different about a $500K sale versus a $200K home sale? I would submit that other than the transaction price, the entire sales process is identical. There is no difference. In some markets it may actually be faster and easier to sell that $500K home using less Realtor time and resources.

  49. I can understand your argument for a flat fee structure for listing agents, but don’t you think that the better agents will be earning a flat fee very similar to their commission as it is now? I’m not sure I believe that flat fees wouldn’t be dissimilar from the current total commission earned unless you are going with a newer or less experienced agent, exactly who you are trying to avoid. A Porsche still costs what a Porsche costs no matter if you are paying cash, financing, trading or coming at it from whatever angle you choose.

  50. @ Grant
    “but don’t you think that the better agents will be earning a flat fee very similar to their commission as it is now?”

    No, because there is no good way to identify the better agent when the normal consumer is only going to buy a house a handful of times across a 40-50 year time frame. The most expensive is not always the best. Actually, usually, the most expensive is never the best, as the most expensive is usually there because of marketing and some quality. Mercedes and BMW aren’t the most reliable cars, but they do make a strong argument for being the most expensive cars. In fact, their cache basically comes from being the most expensive, not the best.

  51. I’d use a discount broker if I was going to sell again. The agent didn’t nothing apart from marketing and contracts. If you ask me their job should be to negotiate a good sale price for me. It was me who ended up negotiating the sale price though the agent. pretty poor.

  52. Pingback: Keywords of Awesomeness: How to Reduce Your Rent by $600 Per Month and Live in a Nicer Apartment | The Gilded Nutshell
  53. I’m one of those walk-aways.

    I had perfect creidt, a well-paying job, and saved up a nice down payment for my house. I lost my job in 2004. Used up my 401k making the house payments while I looked for another job. Couldn’t find anything close to what I was making ($57k a year, not a huge income but ok for a single person). I found jobs as an engineer (I have a masters, 2 bachelors, I present myself well but I am in an area of very high unemployment…think Michigan…not good). The jobs I found paid $40k in manufacturing – and believe me, $17,000 is a very big chunk of income to lose when you ahve a $1000/month house payment to make. Taxes in my area more than doubled in the few years I was in the house – I simply couldn’t make it anymore – can’t pay the housepayment, the taxes, the utilities, pay back the credit cards I was living off of while looking for a job…so I packed up my stuff, put it in a storage unit and just recently found a job in another state. I haven’t made the last 20 house payments and they still haven’t locked me out of it. It’s been empty for months – I couldn’t handle the stress of it so I started sleeping on my brothers couch, working a temp job while I searched for that out-of-state job.

    I moved to the new city and lived in a tent for two months (literally…) while I saved up enough for an apartment. Yes, my credit is ruined. My wages are garnished til God knows when. I’ve learned to live on cash only – I will never have another credit card as long as I live. I won’t buy another house any time soon – and if I do, it will be for cash only – no more mortgages for me.

    My ethics are strong. I never paid a bill late until that layoff happened. I never imagined – FIVE YEARS LATER – I’d still be living out the hell from that job loss.

    It could happen to anyone. The really ironic thing? I wasn’t underwater – my house actually went up in value while I lived there – unlike my brother and sister who are both sitting on second mortgages in houses now worth 2/3 of what they paid for them.

    For me, it’s been the stress of it all that I can’t handle. I make my rent payment every month, pay what I can to the companies I owe and someday, hopefully, I can pay them all what I owe. For now, that’s what I have to do.

  54. I agree. I’m still waiting. I think home prices still have a way to go, especially with the recent foreclosure problems. There’s nothing wrong with renting.

  55. Hi Jen:

    Are you still waiting until after 2012 to buy your next house or do you see anything out there right now that may change your mind? Since you wrote this piece a year ago, any chance you can follow up with an update on what you see out there in 2011? Many thanks for all you do.

    1. 2012 is just around the corner – less than 30 days away. 7 months on since this last comment, I too am curious what Jen’s outlook is now? Seems like there hasn’t been much activity on this blog for a while.

      As someone who’s been watching the REO (bank owned / foreclosures) market in Silicon Valley, I’d say that the better properties, those needing paint and minimal repairs, are selling quickly, sometimes with multiple offers – right or wrong, someone thinks now is the time to buy.

  56. I totally agree. I will be waiting until 2013 before I buy another home. Housing prices are still dropping and I don’t believe there is any end is sight in the near future at least not from what I have been seeing, reading, and hearing. Good advice to wait. I will remain a happy renter until then. :-)

  57. interested rates are great homes are priced right if you have money
    to buy a home thats find but there are millions out there that want to buy
    and can,t because banks are not leaning to normal people when is
    something going to be done about the banks people we all need to
    protest more again the greedy banks there are alot of good people
    that want to buy a home its time every one stays up againest the banks
    lets tell them we an,t going to take it any more every one needs a home
    to call there own that s the american dream

  58. Well then your are an idiot!
    IF home prices go down, you are still going to have a higher interest rate in 2012, so you won’t be getting ahead at all. Home prices AND interest rates are lower than they have been in several decades. If you keep waiting to save that last $1,000, then you’re just getting greedy! Regulations will continue to interfere and it will become increasingly harder to qualify for a loan. So you are just setting yourself up for failure at this point. Not to mention renters are currently paying an average of 25% more per month than homeowners, so you’re not even getting ahead there!
    I hope you stay a renter for the rest of your life because you’re obviously too dumb to own a home! I will just be laughing at all you saps while my home appreciates over then next few decades!
    Good luck on your waiting game, lady!

  59. Hi Jen,
    I’m very new to this conception of realty and buying a home of my own would be a dream come true. After all the trails and tribulations in trying to survive 7years living in a van, and working two full time jobs, finally I been on the waiting list for HPHA for 7 years getting into affordable low income housing. I,myself and my fiancee are both collecting social security benifits for disabilities of depression were finally slowly getting back on track but really need strong advice from a consultant of your profession and wisdom of knowledge is what I strongly would be so appreciated for your advice on what steps I need to take legally and financially pleas leave a msg in my email adrs or pls dont hesistate to call,me at area code 808-699-3412, I really would love your advice and help.

    Lazetta Makalani Chun

  60. I just decided to buy – not because I am getting a 3.9% rate, but because I end up saving over $150 a month by owning.
    We’ve been paying $1900 a month for rent and it was just increased to $1950 (what can we do really- pay to move – which costs $- and HOPE we find another comparable place in the same school district, etc.).
    We ended up finding a place for sale in the same development that will end up costing us $1800 a month including insurance. So, while housing prices may still be dropping, owning, in my situation, is cheaper than renting.
    Prices may drop a little more, but I doubt we’re going to see 240K home drop to $200K selling prices at this point.
    Bottom line, crunch the numbers and see what works for you.

  61. This is a really good post. Very well written and authoritative. I myself am looking at buying a home (It’s now 2012), and read this article with as if it was written in 2012, not 2010. Somehow, I feel we are not out of the dark yet on these mortgages. I, like Bob, would love an update.

  62. In Washington state we have a company called Redfin. Their agents are paid on customer satisfaction, NOT commission!

  63. According to U.S. Housing Economists (most data compiled from Corelogic), every state has a varying amount of foreclosure (shadow) inventory. California has 11 months supply (as of August 2011) and New Jersey for instance, has 51 months of supply (again, as of August 2011). The months of supply is figured at the ‘rate’ of sales flow (from the prior year), and the inventory level. So, New Jersey may have less inventory than California but New Jersey doesn’t sell homes at the rate that California does.
    I’m not sure one can say that there are 9 years worth of inventory since one would have to look at rate of sales flow also, which varies from state to state and region to region. I’d have to investigate your other data to comment on it, but the subject of ‘shadow’ inventory I’m familiar with since I gave a presentation on it in Q3, 2011. Housing prices are dropping in certain areas – definitely not in major metropolitan areas such as San Francisco, the east San Francisco Bay Area and Los Angeles where multiple offers are normal right now as inventory levels are constrained. The mobile home market and certain condo markets are still soft. Keep researching – data is good, and it’s best to be an informed buyer. You’re doing the right thing.

  64. If it helps, I can comment on one of the things that makes a good real estate agent. Yes, commission is the compensation, but a good agent will give you data and not expect anything in return. In other words, buying a home is a life event – you need an advocate. Someone that isn’t bothered by walking beside you for a season without getting compensated. An agent that loves the business is in it because they enjoy shepherding people through the home buying process and beyond.

  65. Good information. Why can’t Forbes or some other big news outlet post such a well researched, informative article? We were looking at buying a house this year after, but came to the same conclusions: Better to pay rent for a year then to buy a house and lose 10% value in the next year, which would be more than we paid for rent. If we bought a house for $150,000 we would lose $15,000 in value plus $2,000 property tax when we pay only $12,000 in rent a year. That is a loss of $5000 in one year. I think we’ll wait until 2013 to buy!

  66. I know this is an old blog, and wanted to add my comments about timing the market. Timing the market is never a good strategy when using national news and trailing indicators to base the decision. Local markets fair differently than the national average; some better, some worse. Some markets depressed faster than others. Some have been on recovery after the first wave hit. Just a word of caution that some markets had and have bottomed out.

    Secondly waiting years to buy is also not a good strategy. You could be losing what you save. For example – if your are leasing your residence for $2000 a month, in six years you would have spent $144,000 on lease rents, so the market would have to drop an additional $144,000 from current values just to break even.

    A better strategy would be to understand the nature of the market in which you are investing. Simply put, if people are losing their homes they either end up homeless or need to rent out a place to live. If rates are low enough to make the property cashflow, does it not make more sense to invest in rental properties for which you can charge premium rents to people with affected credi?. While they may not be able to afford their inflated payments, they still can afford to lease.

    There is money to be made in any market, you just have to understand it, and not be afraid of what can happen. Every investment has to have the right exit strategy. Good luck to everyone. There is no right or wrong answer.

    You should always look to find the opportunity.

    As far as comments on using a broker. I agree. If you bay 25+ properties a year, you do not need a broker. If you don’t you absolutely do. What you think you are saving in working with a broker, you pay for in lack of experience.

    You are also dedicating time to do something that the best use of your time. What is your time worth? This is a more important question. If you make 80,000-100,000 a month, doesn’t it seem a better investment to pay someone to spend 2-3 months doing what you want for 20,000-30,000.

    Take all things into consideration. Every situation is different, and you must weigh out your own opportunity costs.

    Good luck and prosperous year to all

  67. My husband stumbled upon this post in our housing search and we were both wondering if 2 years later you still find these things to hold true?

  68. Id say currently its time to buy given you have the down payment and good income. Renting puts your monthly income towards the property owners mortgage. The money you could supposedly save renting while waiting for the market to become cheaper could have berth used to pay down the mortgage on a home. Let’s say you spend 1000 on rent per month for 6 years. That’s 72k and although you will using some of your cash flow to pay down mortgage interest and property tax you can’t tell me that you’re going to find homes drooping prices in that range. Even if they did drop to that level you waited 6 years renting when you could have had your own home and price of kind. Screw renting I’m buying.

    1. if you bought six years ago (2006) the price of your house would have gone down much more than $72,000, plus you’d be paying much higher property taxes. i agree that at this time it is a better time to buy a house, but from my standpoint rent costs me $12,000/yr and if I buy a house for $200,000 and the value drops 10% then I’ve lost $20,000. even if PITI is the same as my rent I am not gaining anything from buying. i was looking at buying in 2011 and i’m glad i didn’t because i can get the same house for $20,000 less than i could have last year; or i could get a nicer house. i’m going to wait until 2013, unless i get a great deal on a foreclosure.

  69. Your post even though for 2010 has made me rethink my intention to purchase a house. Things are not getting better in UK either and what Brett suggested is good, stay put till 2013 and see what Santa will bring then. The house market is not well, lots of people selling, but the economy is till week, I’m personally afraid of losing my job and interest rates have not reached the level to motivate me to buy yet. So I’ll sharing a rented apartment for some time more and see what happens in the year to come.

Leave a Reply