TIME article Presents a Potent Case for Buying Now

At last someone in the media who understands how real estate (and investing) works!  This is not your typical, “scary, sky-is-falling” article (because why would the media report on good news articles, they don’t sell many magazines) — but, finally, a reporter who uses reason and logic to analyze the buying and selling of real estate. Props to Adam O’Donnell for turning me on to this article.

From TIME magazine, here’s the article.

For any buyer, these should be the key takeaways:

  • Ignore the headlines
  •  “There’s rarely been a moment in history when you couldn’t scare yourself into doing nothing”
  •  “When prices are falling, few people have the discipline to buy stocks, a house, gold, art, or any other asset. But those who do pull the trigger excel in the long run. As John D. Rockefeller famously said, “The way to make money is to buy when blood is running in the streets
  • “It’s time to get serious – before an inevitable rise in interest rates wipes out your advantage.  The thing that will make home prices stop falling is the very same thing that will push mortgage rates higher. So anything you gain by a further drop in prices might be offset by rising financing costs.  … in other words, if you wait one year to buy, and the interest rates go up even ½ percent, you would have saved nothing.

 

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2 Comments

Filed under real estate, redwood city

2 responses to “TIME article Presents a Potent Case for Buying Now

  1. Steve

    I don’t agree with the conclusions of the article for several reasons. First, the article is two months old. It assumed that we had skirted a recession. While the NBER hasn’t defined the current situation as a recession, its long time chair (Martin Feldstein) did. Problem two: the article thought the rate premium for jumbo loans would fall in short order. It hasn’t, even with the ‘jumbo-conforming’ loans up to $729k.

    Other problem: arguing that because a rise in interest rates can eliminate financing savings from a 10% price reduction. So? While I might be paying the same each month *I am 10% wealthier*. That seems a little important. Equity matters: we can’t all live on debt.

    Finally, while there is blood in the street, why not wait for more? If prices keep falling – which will only continue to fall if interest rates rise (the threat trying to induce potential buyers to buy) – why not wait?

    Steve McB

  2. Good points, Steve. Yes, the article’s two months old — firstly, I can’t believe I missed it when it first came out. Probably because the only real estate stories the media seems to salivate over and regurgitate are the negative ones, and most of those have conclusions that I disagree with as well. A recent news report I saw on KTVU, in typical doom and gloom fashion, said the Bay Area market was in such a tumble, and as evidence of their award-winning reporting they pointed to 15 foreclosed homes in one neighborhood in Discovery Bay. Hmm, in my 44 years of growing up in this area, I can’t recall the last time Discovery Bay was such a bellweather of Bay Area real estate. Ah well, just another shoddy day in journalism, I guess. So who to believe these days? Talking heads? National averages? Economists who don’t ever talk to real buyers and sellers? My own tendency is believe people in the trenches. Five people will tell you we’re in a recession, five will tell you we’re not. Again, who to believe?

    I don’t discount that the market’s cooling in many areas, nor that our country is not as economically strong as it was. I do get that. If you can wait to buy, then by all means, wait. Sure, you can wait for more blood in the street, but no bell is going to ring when we’ve hit bottom and there’s no more blood. Nobody can predict where & when a bottom is, nobody. Have we hit bottom in Palo Alto, where 9 out of the last 10 homes sold in the last 2 months were all 5-6 figures over asking price? Hmm, doubt it, and doubt we ever will. Have we hit a bottom in the Shoreview area in San Mateo? Probably not. A home in Twin Peaks listed at $4M sold for $5.6M, closed in 10 days, all cash. Has that market hit bottom? If a buyer’s looking for tremendous appreciation in one year, then, no, this is not the time to buy. Every buyer’s situation is unique, and every neighborhood/block has different dynamics and supply/demand issues; but if a buyer is buying for the long term, then my opinion is, yes, it is a good time to buy. You take any 5 year window between 1968 and 2007, and the average (yeesh, I detest using averages sometimes) median price has always, ALWAYS increased. In 2002 the median was $316,130, in 2007 it was $588,970.

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