I have been a Real Estate agent in San Diego for more than 30 years. In those 30 years, I have seen many ups and downs in the Real Estate market. In 1981, when Jimmy Carter was President of the USA, in a very short time, the prime rate zoomed up from 11% to 22%. Mortgage rates went up from 10% to 17% and unemployment sky rocketed. At that time, I saw many Sellers unhappy because they could not sell their homes. Fear permeated the air. Nobody made a move. Real Estate was virtually paralized. Also, I saw many Buyers unhappy because they could not purchase when the interest rate went up to 17%; they could not qualify for a loan or afford the payments at those rates.
I saw the same scenario repeated again and again in later years. I saw properties go down in value and later up subsequently. When Real Estate was appreciating fast and steady, I used to buy properties with a partner of mine that used to asked me "Is this going to be the last of the good deals or the first of the bad deals? Sellers were happy. Buyers were not.
What I want to emphasize is that during the times when Real Estate began going up, it went up really, really fast. Many Buyers that needed homes and were waiting in the trenches expecting prices to fall down further, lost out and where very unhappy. When they made up their mind to buy, they had to pay higher interest rates and higher prices. This situation reflected that by paying higher interest rates, the value of their purchase power diminished. They had to buy "less house" because of the higher interest rates they had to pay and qualify for. Also, they paid higher prices because when house values go up, they go up unexpectedly, just like many stocks that go up from their initial offering, so fast, that when you catch up with them, they are unaffordable.
My thinking is that if you need a home, you should buy it now. Why now? Interest rates are very low, inventory is up and so therefore, you can get a good deal.
Let's say you want to wait until prices go down further. If you are buying a home where you plan to stay put for a few years, the lower purchase price is not going to make any difference in the long run. I believe it is not worth playing "Russian Roulette". I remember that when I bought my home when the market was up, I was very upset because I had to pay $ 10,000 more than the Bank's appraised value. After a few years and my home went up in value, I did not even remember what the appraisal fuss was all about.
For Buyers needing to buy, waiting could be a bad financial decision. They might end paying a higher interest rate and one point difference in rate could mean that the home they were "eyeing" to purchase at a lower value, could become unaffordable.
The rash of short sales and foreclosures in San Diego, even though is high, it is not going to drag prices down. The amount of short sales and foreclosures is very low compared with the existing amount of homes in any given area. Foreclosures do not represent market value. They are an abomination.
A good example would be a project that I am very familiar with, in University City in San Diego with more than 800 homes, town homes and condominiums. There are only 4 properties in default, in auction or bank owned. These represents half of one percent of all the properties in the complex. This is not going to bring prices down. Even banks that owned foreclosed Real Estate, are asking similar prices than other properties that are not bank owned or in default. You might be able to purchase the foreclosed homes 5% to 10% lower than the asking price. That would be the exact case on the rest of the homes listed in the Active Market that are not bank owned.
I believe that if you are a Buyer that needs a home and plans to live in that home for more than 3 years, "jump in" Good luck.
Isaac Bensussen (www.besthomesinlajolla.com)
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