While the media may not have caught up to the increase in sales activity in the Trivalley for the past three months…I have. The chart seen below, displays the increase in activity in home sales for the TriValley since the beginning of 2008. The increase in home sales can be attributed to several factors including a dramatic spike in rental prices, aggressive sellers willing to wheel ‘n deal, and historically low mortgage interest rates.
So, are we at the bottom? Is this the time to buy? Quite honestly, I don’t know. But here is something interesting to think about. Maybe you should buy BEFORE we hit the bottom (this is not a typo). Here’s why.
If we are 6-18 months away from the ‘bottom’ and prices are going to slide down further, then maybe it is a good idea to wait it out until then. However, if we are 3-6 months away from the bottom, then I think that would be the best time to buy.
(Keep in mind this analysis is only for individuals who are currently renting and thinking of entering into the housing market. If you currently own a home and are thinking of moving up, you have no worries because you would be selling and buying in the same market, whether it is a hot or cold market)
Let’s take a look at the chart I have drawn up. Letter “A” represents the market if we are 6-18 months away from the bottom. With a possible year and a half of price correction left to go, it would most likely be wise to wait on the sidelines until things were closer to letter “B”.
The only way we know we have hit the bottom of the market by definition is only after we have bounced back as represented by letter “C”. As the chart suggests, the prices we see right before the bottom would be similar to the prices right after the bottom, hence a buyer buying at point “B” or point “C” would be buying while the market price would be the same. While the market price would be similar in this scenario, there would be a significant difference in the purchase price and terms.
At point “B” the market has still not recovered and the economy is suffering. As a result, interest rates will be lower and banks would be competing for the business of the buyers. Capturing a lower interest rate, can save you thousands in the long run even if you pay a higher price than someone who buys the house for cheaper but pays much more in interest over the years.
Further at point “B” the other buyers are still on the sideline waiting and waiting and waiting. This allows you to be selective and not have to fight over best house deals in the neighborhood. When you put in your offer, the sellers are nervous of losing you and your offer and as a result would be willing to negotiate price and terms much more aggressively and in your favor.
In review, point “B” allows you to purchase in an environment which would share similar market prices compared to the market once we bounce back from the bottom, you are able to capture in most cases a lower mortgage interest rate, pick out your favorite home from a large selection and negotiate a better price and terms with sellers who are afraid they may lose you if they don’t deal…sounds good to you?
And what if you wait until point “C”. Point “C” represents the market after prices have jumped back up and everyone knows we are back at a regular increasing market. The media is back on the housing bandwagon remembering that real estate is still the best investment. The federal reserve is again raising interest rates making mortgages more expensive. Open houses are busy with buyers and the best homes on the block receive multiple offers. You put in an offer and the seller now knows that we have hit the bottom and they are no longer willing to negotiate as they did just months ago.
So, are we at the bottom should not be the question because we will never know until we bounce back. Are we 3-6 months away from the bottom…now that’s a good question!
