Buyers Market? Think Again

Don’t let the media fool you, it is NOT a buyers market. Maybe it is, if, and only if, you are willing to wait month upon month upon month – you get the idea – for approval from the bank for that short sale property. There are good deals to be had, but you have to be willing to wait. A lot of people think they can, but since the process is so long and the banks are so overwhelmed, potential buyers are pulling their offers and moving on i.e. when an equity home is on the market people are overpaying.

When the short sale buyers pull their offers they are so ready to buy a home they act irrationally. Irrational in the fact that they are willing to pay well above the asking price for no other reason than they HAVE TO BUY A HOUSE BECAUSE THE “EXPERTS” ARE TELLING THEM TO BUY NOW. Irrational because they are willing to waive appraisal contingencies – for example the house appraises at $450,000, but sells for $510,000. Typically a bank won’t finance a loan for more than the house appraises for, but like most things there are ways around this. You buy a mortgage origiation point or more likely the bank will require you to make up the difference in cash. Of course, you can always pay in cash, in full, and believe it or not people do. We lost a house to an all-cash offer. We were also asked by a sellers agent to waive the appraisal report, needless to say we did not put in an offer, but four others did. WTF???

Let’s not forget those that are going to rush to buy and close escrow before 30 November 2009 just so they can claim the $8,000 tax credit for first-time homebuyers. The way I see it, and I could be wrong, I think there is going to be a mad rush and even more competition in the next two months. Basically you have to be in escrow no later than the end of October if you wish to claim the credit. As the law is currently written any home purchase that closes escrow beginning 1 December 2009 is not eligible to receive the tax credit.

I realize the Southern California market is markedly different than 95% of the rest of the country. However, by rushing to buy and pushing prices back up is doing no one any favors. If you buy a home for more than it’s worth that is exactly what you are doing. Even if it’s worth that price to you, it’s not a sound financial decision. So basically all this irrationality coupled with so many short sale/REO properties is making for a very small sellers market. As my husband likes to quote the age-old proverb: “a fool and his money are soon parted.”

8 Comments so far

  1. OC House Hunter (unregistered) on August 28th, 2009 @ 10:07 am

    I love how all these stats about rising home prices are coming from realtors and home builders. Of course they are going to paint a rosy picture of the market. IT’S HOW THEY MAKE THEIR LIVING!!! Listening to them is like putting the proverbial fox in charge of henhouse security.

    I moved to CA in 2004 I heard all the same stuff from the Realtors….”buy now!”, “prices are only going up”. If I had listened to them then I’d be $200,000 in the hole. Yes, there is some pent-up demand and people who were priced out of the market are now buying, but that’s a small pool. Truth is you wouldn’t have 400 banks on the FDIC warning list if the housing industry was improving.

    Yes, I know there is an $8,000 tax credit, but that doesn’t excuse people from rushing in like cattle. DON’T listen to the realtors. Just look at the facts:

    1.) 400 banks on the FDIC warning list, the highest ever. Shows people are not paying their bills. So how are they going to buy a house?

    2.) 30%-40% of current home owners are underwater. Meaning they can’t sell, move or trade-up. They are going to be stuck for a long time or until they can pay down their mortgage. A true losing proposition.

    3.) People who are in their homes and not making their mortgage payment will eventually get kicked out. If they do end up staying, which they shouldn’t, they will never be able to buy a new house. Their credit will be so bad and the terms of their modification so arduous they are going to be stuck there for years. Again not moving, buying new homes or trading up.

    4.) Unemployment is near 10% nationwide and unemployment in CA is now almost 12%. WOW! Until people get jobs they can’t or shouldn’t be buying a house.

    5.) Real wages are not increasing. The problem you had in 2005-2008 is the prices of homes were rising 10 fold faster than wages. Home prices must keep pace with wage grow or else you have another bubble.

    6.) Banks are not going to lend to anyone with less than 10% down and debt to income ratios of less than 28%. I can’t tell you how many homes I’ve seen fall out of escrow because buyers can’t get loans. The average credit score in the US is 651 and falling; that’s horrible by a bank’s standards. Banks are not lending unless you have very good credit 700+ preferable 720.

    7.) Home owners with equity are delusional. They are shell shocked that they are no longer going to get $800,000 for their 1300 sqft 3-bedroom in Corona. They are still over pricing their homes because they hear the market is coming back and some uneducated buyers are taking the bait.

    Patience pays off. Let this mad rush of pent-up demand pass. Let someone else over pay for a place just to get a tax credit. Over a 30-year mortgage it is better to pay $8,000 less for the house, you’ll more than double your money.

    Don’t listen to the home builders and realtors of course they are going to tell you “get in now”. Until you see unemployment decrease to 8% and real wages increase by at least 2-3% the housing market is going nowhere.

  2. Evan (unregistered) on August 28th, 2009 @ 11:52 am

    Pittrollie, I’ve commented on one of your posts before (I’m the unfortunate soul trying to find a deal on the Westside of LA). You want to knock some of these stupid buyers over the head with a frying pan, don’t you? People with itchy trigger fingers just rushing in to buy something now, paying over asking price, just makes things worse for everyone else. Just have to be patient. I’d much rather wait around until the end of this year, or early 2010–as you say, there’s probably going to be a mad rush of buyers trying to get the tax credit, and I anticipate some desperate sellers after that ends–and forget the $8k credit in favor of a lower purchase price that means a lower monthly mortgage payment.

  3. Pete R (unregistered) on August 29th, 2009 @ 8:20 am

    Los Angeles, CA Unemployment Trends – June 2009

    The Los Angeles, CA Unemployment Situation Visualized in Heat Map form:
    here is a map of Los Angeles Unemployment in June 2009 (BLS data)

    versus Los Angeles Unemployment Levels 1 year ago

  4. Gina (oc_gina) on August 29th, 2009 @ 7:13 pm

    I truly think that people have been waiting so long for any type of affordability, that they are rushing in after having to wait 5 or so years. That’s a long time to wait if you want a new house, in this era of instant gratification and all.

    I know we wanted to buy another home in 2002-2003, but we were already priced out, even though we would have made a nice profit on the sale of our original. The property taxes alone, which for some strange reason people don’t think of when they buy a home, would have killed us.

  5. pittrollie on August 31st, 2009 @ 9:35 am

    OC Buyer ~ Nicely said.

    Evan ~ Indeed I would. A good frying pan braining might just knock some sense into these people. As for the $8,000 while it would be nice to essentially get “free” money, but we’re not making that a priority for buying a house. We’re doing it old school, you know, do we like the area/neighborhood, do we love the house, can we afford it, etc.

    Pete ~ Thanks for the links

    Gina ~ The sad thing is a lot of people didn’t wait. They bought into that whole “you must buy now mentality” even when they couldn’t afford it. You also brought up a very good point, property taxes. Most people don’t think of that when they are looking and/or buy a home. Luckily for me my husband is a business guy and loves to “run the numbers.” In addition to the property tax don’t forget the HOA fees and mello roos, which are not uncommon in a lot of South County cities and/or neighborhoods.Don’t even get me started about HOA’s or mello roos.

  6. DanGarion (dangarion) on August 31st, 2009 @ 11:31 am

    Let’s not remember that there will be a massive influx of homes on the market in November when/if the foreclosure moratorium is lifted. Banks as sitting on a LARGE quantity of homes.

  7. jimhenry (unregistered) on August 31st, 2009 @ 11:37 pm

    Check out There needs to be a program for the elderly but not quite to retirement age for mortgage modification when the have lost their job during this particular recession. I made a decent wage because I put my time into a company and now have no job. I am looking at $10 – to $12 hr jobs after working all my life. You can’t make a mortgage payment on that kind of money. I will eventually lose my home.

  8. DanGarion (dangarion) on September 1st, 2009 @ 8:50 am

    Sorry @jimhenry but it’s not that simple. People don’t just deserve to be bailed out. A house is an investment and just like every other investment there is a risk. It’s unfortunate but that’s the way things need to be, we aren’t entitled to owning a home, and the government shouldn’t be involved in making sure everyone can own a home.

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