"Home prices will NEVER return to the levels of 2005. NEVER," said Roger Arnold, a well respected Global macro-economist, during a recent conference call with several Keller Williams Agents in the Northern Virginia area. Of course, he meant that comment in the context of relative value when you consider affordability indexes (median home price compared to median area income), inflation, etc.
He is not discouraging buying a home today, just "calling it like he sees it" for existing homeowners, himself included (and me, too). At this point, the artificial home price inflation peaking in 2005 or the beginning of 2006, has pretty much come and gone. Even in areas where there is still fallout to come, prices are relatively low, and homeownership offers many advantages, financial and otherwise.
Locally, in the Washington DC metropolitan area, we're somewhat insulated from the national economic climate, but we don't go unaffected.
Since 2006 and 2007, area homeowners thought they would "wait out the storm" by renting their homes for a year or two, rather than selling them, when life forced a move. It's not that they couldn't sell, just that they wouldn't, because they wanted to get back that 2005 value... and they wanted it very, very much....enough that they couldn't hear what they didn't want to.
Sadly, the next couple of years saw continual price decline. It caused additional fallout, with even more homeowners letting go of those "second homes" to foreclosure when they realized they simply didn't have the reserves to withstand the storm. They had drained their savings, and run up credit lines. Even if their homes were rented, being a landlord turned out to be a much harder job than they thought...and it wasn't making them any money. The flooding of the housing market with so much similar inventory all at once caused home sales to slow to a crawl, and in some areas to a complete halt.
At this point, our inventory was mostly post foreclosed, bank owned homes (REOs)....and a few traditional sellers who had their homes on the market for about $100,000 above the neighboring REO. The traditional sellers were being laughed at by buyers, and REALTORs were shaking their heads. Some agents would even shy away from taking traditional listings entirely. The REO homes had previously been owned as rental homes by investors; or starter homes by people who had already moved into their next "move up" home without selling their first house; or by people who never should have been buyers in the first place. Essentially, our market was flooded with an inventory of homes at similar price points, and all in direct competition with one another. So many choices, and nothing was selling.
In 2008, desperate to move some houses, banks began holding public, well marketed, auctions. What they, and the rest of the world, discovered was that prices weren't low enough. But, when they were, buyers would come out of the wood work. So, in 2008, even when many thought prices may had already "flattened", Loudoun homes saw a sudden and dramatic 10% price drop in a matter of a few months; and the buying frenzy began.
Since then, we've seen continual competition for well priced homes. REALTORS began to be able to predict market values again since there was some stabilization... at least within that segment of the market. Perhaps because we could set expectations properly, the same people who did not want to sell their homes in 2006 and 2007 (because they didn't want to give up value) were now ready to sell.
Wait! What was that? You got it. A homeowner unwilling to sell in 2007 at $300,000 because they were going to wait until they could sell it for $400,000 again were suddenly willing to sell at $225,000 in 2009? Yes. The sellers trying to time the market lost, big time. In fact, some where now under water, but were willing to face the fact that they could no longer hold on, and started talking about options to foreclosure (i.e. short sales).
With 2009, we've seen more traditional (non-distress, non-bank owned, non-short sale) sales re-emerging in the marketplace, which is what buyers really want.. but inventory remains low. So, premiums are being placed on these homes, and fierce competition ensues. Prices are going back up, for all types of sales, but most especially for well cared for homes which are not short sales. In 2009, we've regained most of the value we lost in 2008.
But now the greed is re-emerging and it is scaring me. Sellers, seeing that prices have started to regain value in 2009 are saying that they have new faith that prices will continue to go up, and they seem to think by next year, or the year after, they will be back up to 2005 prices. No, it's not likely. I don't think so, and neither does Roger Arnold, or any other REALTOR or economist that I know.
My message here: Please, don't try to time the market. If life is suggesting to you it is time to move up, move out, or move on... do it. Sell for what it's worth and make the best of it. I am talking here, mostly, about principal residences... and telling you that if you didn't mean to be a landlord, you shouldn't be. And, you need to seriously calculate the cost of a vacant home before you allow it to stay that way.
Besides, if you are moving out of that "starter" home as a move up buyer, or to relocate, then you are likely going to get the best end of both markets - seller's market conditions when selling, buyer's market conditions when buying. What more could you ask for? You would not have gotten that benefit in 2005.
Looking at value rather than prices, it may very well be prudent for you to consider making your move now, while interest rates are lower and buyers have buying power, while inventory is low and buyers have little choice and are paying premiums and competiting not just on price but on terms.
Remember, most homeowners who thought, in 2007, thought their 2005 values would have returned by now. It hasn't, and it's cost them money - a lot of money - over the past two years. They have seen their dreams shattered and finances ruined by trying to time the market. Don't make the same mistake.
Here's an example of someone who's in denial over market conditions - it's a bit humorous, but after reading this blog and watching the video, look in the mirror. You're not doing the same thing, are you?
http://therealestatewhisperer.blogspot.com/2009/08/in-economies-like-ours-its-hard-to-know.html
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My advice here is NOT one size fits all.
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