From Ben Stein’s How Not to Ruin Your Life:
What to Do When a Boom Goes Bust
In March of 1990, after two years of looking for a house during a hysterical real estate boom, I bought a modest home in Malibu for exactly $600,000.
The owners had paid about half that five years earlier, but I really loved the house and thought that in a highly desirable area like Malibu the downside would be limited.
The real estate crash to end all real estate crashes began the next month. Within three years, I couldn’t have given that house away. If I’d been able to sell it, I might have gotten $350,000 for it.
The price languished in the same miserable range for a few years, then revived, and then took off for the moon. By early 2005, I might have been able to sell it for $1.8 million — a tidy profit. Plus, I had very much enjoyed living there. (Although I do recommend that you never buy a home with a septic tank.)
Then, in the early months of 2006, the real estate boom collapsed. I could put the house up for sale, but there are few buyers out there. I certainly couldn’t get anywhere near what I could have gotten for it in early 2005.
…
There’s a bit of a moral here. When real estate crashes happen, they rarely involve that elusive creature called “the soft landing.” Yes, friends, when real estate starts to fall after a meteoric rise, it tends to fall hard.There will be exceptions, and you’ll hear of people who sell their homes for vast sums overnight, but that’s not the general nature of a real estate correction.
Usually, they’re grinding, drawn out, and involve real pain. Homes sit on the market for months. Owners have to seriously lower asking prices. And the houses still don’t sell.
…
What does this mean for you?First, it’ll probably be a good time to buy a house in a year or so. The smart buyer buys when the bust is on, not when the boom is on. (I know this suggests that I’m not a smart buyer, but I’ve bought other properties at the bottom and have been very happy with those purchases.)
Second, it’s a reminder that you shouldn’t count on your home to make you rich. Homes are for living in. They shouldn’t be your main investment unless you’re a builder.
And third, if you’re a buyer, you can expect to be able to drive a good bargain. Conversely, if you’re a seller, don’t take it personally if you’re hammered by buyers. That’s the way markets work.
Buy at the bottom in real estate (and in everything else — read on), or as close to the bottom as you can see, and patiently wait for the boom to come back. In the meantime, live in your house and enjoy it. A house is a machine for living, as the famed architect Le Corbusier said. It’s not a machine for making money. If it does make you money that’s all to the good, but it’s not the main function.
That’s right, live in your house to enjoy not to be straddled in debt. It may be a good time to buy within a year. However, I feel 2-3 years out will be better. It’s like Chinese water tortue, a slow grind down.
Wandered into an open house Sunday for the first time in almost a year.
The Greedy Grubber realtor was trying to get an offer out of me — anything. The desperation was thick.
The house was laughably priced about 20% above 2005 peak prices for comps on the same street. Greedy Grubbers.
She hit me with the “low interest rates” pitch, and all that.
The kicker was the pitch that “It’s better to buy now, because in the spring there will be more buyers.” To which I replied, “And more inventory.” Rely: “Er, um, ah, der…”
It was fun toying with the Greedy Grubbers.
Wow, even Ben Stein is giving advice on what to expect out of this crash.
Take a look at how main media keeps the rest of us like mushrooms:
http://www.dinl.net/guestArticle.php5?id=1281
What a fun and perilous journey we are in for.
-Sapiens
Pending home sales due out at 10:00am
jb
This information is preliminary and will change as sales that closed last week are entered into the system. I’ll update this again on Wednesday.
For Bergen County ONLY, here is the average & median price along with the number of homes sold and number under contract in September for the past 11 years. This is for residential SFH listings; this does NOT include Condos/Co-ops & Twnhs.
Year Avg$ Med$ Sold UnderContract
1995 $265,464 $215,000 579 569*
1996 $252,048 $205,000 578 529
1997 $265,964 $218,000 656 611
1998 $297,774 $230,000 684 591
1999 $340,098 $259,000 608 439
2000 $392,537 $295,000 571 551
2001 $418,217 $325,000 545 423
2002 $494,848 $375,000 583 543
2003 $514,952 $407,000 762 645
2004 $544,765 $460,000 655 621
2005 $663,049 $520,000 684 590
2006 $649,997 $492,000 442 487 as of 10/2/06 9:35 AM EST
And here is the same data including Condos/Co-ops, Townhouses as well as SFH.
Year Avg$ Med$ Sold UnderContract
1995 $241,345 $200,000 721 689*
1996 $235,855 $190,000 705 690
1997 $250,638 $210,000 841 770
1998 $272,553 $218,000 886 755
1999 $299,183 $237,000 842 598
2000 $339,488 $260,000 803 770
2001 $368,705 $297,500 732 587
2002 $428,868 $342,000 828 774
2003 $458,021 $372,000 1039 908
2004 $478,034 $410,000 952 885
2005 $604,673 $490,000 946 832
2006 $580,683 $450,000 650 686 as of 10/2/06 9:35 AM EST
*1995 data may be incomplete as I believe this is the first year this data becomes available.
Grim, would you expect pending home sales to be up a bit based on the usual Labor Day increase?
September sales down ~31%(p) is the most striking figure there, to me at least. I’m sure others will focus on the decline in average and median prices, but with sample sizes dropping dramatically, it’s difficult to know whether those price declines may be due to changes in the mix.
jb
NJGal,
We’ll get our answer in 11 minutes..
jb
Some PA news, from the Evening Sun:
Let the sellers beware
Karen Berube stood at the kitchen counter, looking through a pile of papers.
“I’m just looking at the mortgage,” she said, sighing. “And that depresses me.”
Her husband, Louis, explained, “We just had another house built, so now we have two mortgages.”
The Berubes like the tan ranch house on Columbus Avenue in Littlestown, where they’ve lived in for six years. But they decided to build their own rancher – one with a little more house and a little less yard.
The Berubes put a “For Sale” sign up in front of their current house and tried to sell it themselves this June, in time for the traditional peak of the real-estate season. They are asking $319,000.
The couple, both are 62, never had any problems selling on their own before. Other houses they had lived in and sold went in a couple of days.
But the “For Sale” sign stood in front of the Littlestown house for a month and no one called.
ot but relevant
in the (bubble free) area of nyc and the 5 boroughs comes this news in my inbox this morning
Hi,
A new condo development in LIC has just cut prices 10% -15%. Most of the new prices have not yet been officially advertised.
Please call me ASAP if you are interested
PHS data released, post will be below this one.
It seems like most of the discussion happens on the top-most post. Since I’ve been posting more frequently, it seems like the daily discussions are getting diluted over a number of posts. I’m going to try to keep one post at the top of the list each day for this purpose…
jb
Went to see 3 open townhouses on Sunday around where I rent since it was a nice afternoon to take a walk. This was my first visit to an open house ever, so I was a bit nervous on what to expect. The realtors didn’t seem pushy after a couple of my replies to their questions told them I was knowledgeable of the NJ market.
The asking prices were still stratospheric. Can someone help with prior information for MLS ID#: 2323009? This is one of the townhouses I visited was was told it came on the market 3 days back.
“Can someone help with prior information for MLS ID#: 2323009?”
Looks like a decent townhouse in N. Brunswick at 62 Sassafras ct. They’re asking 355k. Sold for 295k in June 2004 and 151k in May 2000.
What would you like to know?
jb
(edit, beat me to it)
Can someone help with prior information for MLS ID#: 2615529 as well? Seems like a good deal in Ridgewood.
Thanks.
From Realtytimes:
Don’t Let an Over-priced Home be a Humbling Lesson
Across the country the real estate market is slowing and the news media is reporting on the decline in sales, housing prices, and appreciation. Quite often this creates fear and a holding back by buyers as they wait to see just how low prices will go. One TV news station in Sacramento reported that desperate sellers are turning to ancient spiritual/religious rituals to help sell their homes, such as burying a statue of Saint Joseph in the backyard.
Whether you take that tactic or not, perhaps the greatest influencer in getting your home sold is entering the market with a home that’s priced correctly. Over-priced homes won’t get favorable attention; they lose out to the ones that are reasonably priced.
All sellers are looking for the highest price for their home. That’s why some sellers want to start at the highest point, maybe even asking a higher price than what they really believe they can get — the continued readjustment of price can be a humbling ride down to finding the reasonable price to sell the home.
…
Here’s the problem, especially in today’s current market conditions where numerous sellers are competing for fewer buyers — adjusting price down may come too late and cost the seller less in gain than if the home were priced correctly from the start.
…
Pricing a home correctly initially is vital — otherwise the “we-can-always-drop-our-price” strategy could become a costly and humbling lesson in the end.
2615529 : Ridgewood.
On a main Rd. 60 X 100 lot and in attorney review. Personally.. The house needs work and is on a really main rd. Not alot of space. and in my opiion not a smart buy. The main road issue really a big one for me personally. If you need to sell. (and especially in a young family neighborhood like Ridgewood) This house would take a bit to unload because of the location.
BuyNextYear Says:
October 2nd, 2006 at 11:32 am
“Can someone help with prior information for MLS ID#: 2323009?”
Looks like a decent townhouse in N. Brunswick at 62 Sassafras ct. They’re asking 355k. Sold for 295k in June 2004 and 151k in May 2000.
James Bednar Says:
October 2nd, 2006 at 11:33 am
What would you like to know?
jb
Thanks for the valuable info. Looks like the person bought in 2004 even thought the realtor told me she bought it when the townhouse was constructed. It is lying empty now, and the seller is cayying two mortgages. Comps are going for $299K in the same area, so $354K is definitely high.
Wait and watch is thy watchword!
I visited an open house in Wykoff this weekend. There were about 3 families there while I was there. I was a bit interested, but the property needs a bit of work and financially we will be better off to buy next year. The realtor caught on to my interest in the home and is trying to get me to make an offer, stating that an offer is coming in, etc.. Well today I made my first lowball offer. I doubt it will be entertained, the owners seem real stingy. My offer was 19% off of the listing price and a whopping 28% of the original listing price. Though the original listing price was quite high.
I visited an open house in Wykoff this weekend…
Do you have the MLS number?
Friends i need your help. My friend bid on an auction and bought a stupid property which is not zoned to build. He can grow some vegetables though! According NJ real estate law i heard one cancel the sale and purchase agreement in 3 days. Does it applicable to auctions also. Please help!
I suggest your friend seek legal counsel.
jb
Yes, he should be able to get out of it, but because he is in the attorney-review period he needs an attorney to cancel it for him.
KL
Some brokers and sellers are starting to listen. Or may be became aware of the oblivious, it is the price stupid!
Some of you may recall that I sent messages on overpriced properties in Bergen County and “advised” the listing brokers that the houses are over priced and need serious price cut in tune of 100k if they really wanted to sell. I even posted some of my messages along with the replies. Today I have spotted something interesting, one of the brokers just cut the price by almost 100k. She did not respond to my e-mail directly, but nevertheless took the “advice” or I would like to think that way.
Some Background
Town: Cresskill
Old MLS # 2620510
Las Asking Price: $595k
DOM: 129
New MLS # 2638455 Yes it is a relist
Current Asking: $ 499K
House Bought in 2003 for $400k, the kitchen looks new I don’t know if it was renovated since 2003 or not.
Text of Message to the listing broker sent on9/25/06
Time for substantial price reduction; let’s face it the propriety is on a busy street. You can’t even park on the street; Haircut of 100k will generate serious interest. The market has changes let the seller know it. No Sale = no commissio
Second, it’s a reminder that you shouldn’t count on your home to make you rich. Homes are for living in. They shouldn’t be your main investment unless you’re a builder.
Amen…..house is a house……..
Cliffy, you’re an inspiration.
“No Sale = no commish”