CA Real Estate "Expert" gives INSANE advice: WAIT to sell your house.

[El Pinko]

Real estate experts say a change is coming

'Distressed' homes are driving market
By RACHEL RASKIN-ZRIHEN/Times-Herald staff writer
Article Launched: 03/30/2008 09:19:56 AM PDT

Most homes for sale in Solano County are classified as "distressed," which likely means a change is coming to the area, real estate experts said Friday.
But it's uncharted territory, and what form that change will ultimately take can only be guessed, they said.

"This is the first time in my 20 years in the industry that the distressed properties are driving the market. Even when Mare Island closed, the foreclosures weren't to the point of driving the market," said Beth Brittenbach of Vallejo's Century 21 Schutjer Realty. "They are putting downward pressure on prices and have created what seems like the beginning of an accelerated buyers' market."

As of March 26, there were 3,892 residential properties of all types and price ranges countywide on the market or under contract, Brittenbach said. Of those, 1,319 (34 percent) were listed as foreclosures and 1,056 (27 percent) are listed as short sales. Short sales are those in which the bank agrees to let the home sell for less than what's owed.


"Individuals can't compete with the banks," she said. "People will have to be willing to deal, to give the buyers credit. They may be surprised to see how much the market has changed. We advise anyone who doesn't have to sell their home right now, to wait."






Okay, here's the deal. If you love your house and the payments and taxes are workable for you, then by all means, hold on to it. But if you want to sell, and are thinking you will do better in three years' time, think again.

Median house prices are down by as much as 20% in areas like Solano, Sacramento, etc. But the fact is that this represents just the tip of the iceberg of the overall price decline that is GOING to happen. These areas saw house prices DOUBLE in the years from 2000 to 2006. Do not expect that they will go back to 2006 levels in 2 or 3 years. I wouldn't even bet on prices like that in a decade. My guess is that they will bottom at about 2000 levels (barring a massive economic depression, at which time all bets are off). These prices had become completely decoupled from area incomes because of the influence of 1. easy credit for unqualified borrowers and 2. rampant speculation.


2006 prices are not going to be back for a very, very long time. If you want to sell, sell now, before the depreciation really kicks in. Look at the comparable listings around you and list your house for 10% below that and then you will need to be prepared to be flexible, because houses simply are not moving, especially in places like Solano, Sacto, Freson, etc.

You may take a loss, but if you're waiting for things to pick up in a couple of years, you will be sorely disappointed.


This goon's comments really do illustrate how completely out of touch with reality (or how completely eager to spin) many people in the real estate industry are.


Here are the prices for the decade up to the peak of the bubble.



The California median has fallen to just above $400K, which is equivalent to the bubble year of 2004. If prices had continued to appreciate in line with historical trend and in line with median incomes, the median price in CA today would be about $250K.

(These comments apply strictly to the bubble areas of California, Vegas, Phoenix, Florida, DC etc. There are still some areas of the US where there may indeed be some appreciation over the next few years...)

[babylonsister]

1. Why not wait? Who is buying houses now?

My sis and bil have a house in So.CA that they'd consider selling, but not in this climate. I think they're hoping it improves in 3 years.

[El Pinko]

3. Because house prices are still at historic highs.

If you can move the house now, you will get more than you would in 3 years' time, by far.

Your sis will be very disappointed in 3 years, unless their house is in Beverly Hills, Atherton, Marina Del Rey or other extremely high-end market.

[babylonsister]

8. There's the rub: "if you can move the house". And no,

they don't live in any of the areas you mentioned, but they have put a lot of blood, sweat, and tears into their home, so they'd like to get some of that back. But how do you know about that 3 year benchmark?

[El Pinko]

11. Please study up on the housing bubble and the disconnect between incomes and prices from 2000 on...

The bubble was entirely divorced from the economic fundamentals and based on easy credit. People expecting things to get better will be disappointed because the air is not out of the bubble yet.




CA prices are down to 2004 levels now. They were already quite high in 2000 and probably will not go below those levels because CA is a very desirable state. But the median household income in CA is only about $50K. The incomes to support $400K home prices without very funny loans are simply not there. (with the exceptions being areas like those I named)


Sadly, in some areas, like Fresno, there are so many foreclosures on the market (and even those aren't selling) that even if you cut to rock bottom, you may not sell. In that case I might stay put - if I could afford to.


But a problem is that what sellers are thinking of as "rock bottom" is extremely unrealistic. I think the gravity of this still has yet to sink in with a lot of people.

[Demeter]

16. 3 Years Applies in a "Normal" Housing Recession

There are no good guesses about present times, which are anything but normal.

If I had a house like that, I'd fight tooth and nail to stay put, even taking in boarders, or renting, to keep it going. Or put relatives in. One always needs a place to live.

[BadgerLaw2010]

28. Look at Houston. Those prices stayed depressed permanently.

[BadgerLaw2010]

20. Except you can't move houses right now. Not for anywhere near list/"market."

[El Pinko]

21. That's because "list/market" is still unrealistically high.

NT

[BadgerLaw2010]

27. So what's the benefit in selling now? That $550 house is worth max $400 now or later.

The housing price declines don't fully capture the aggressive case-by-case discounting that happens when someone needs to sell their house and they are dealing with only one interested buyer.

Neither choice is good. The article's advice is not bad.

[El Pinko]

31. I think it is, because the article is working on a false assumption.

That assumption being "prices have fallen 20% since the 2006 peak, so the bottom is near". There is no reason to ever expect that the perfect storm of lax lending and massive foreign investment that created the bubble will bring prices back to these levels within the next 10 years, even with hyperinflation looming as a possibility.

There is every reason to expect that prices will go baclk to the 100-year historical trend of median price at 3X local median income. Prices are still way above historical trend, hence they still have a long way to go.


I think the advice is okay if you're in one of the truly devastated markets (Fresno, Bakersfield) where you may not be able to get $100K for your house. But if I was in a decent suburb, I would NOT wait. I think they'll fall big, and eventually, even the really strong areas like Silicon Valley and San Francisco will see some depreciation, though nothing like what's happened in the exurbs.

[Gormy Cuss]

35. That is in fact the point --aggressive discounting and a large inventory

means that the buyer advantage is enormous right now. It's generally better for a seller to market the property when it's a seller's market or a least a bit more balanced. If someone wanted to sell in Vallejo (Solano county) and buy another house also in Vallejo, it's probably not a good time to do that.

On the other hand, if someone wants to sell and move to a different area, it may be as good a time as any since the short term projections for prices all show declining values in this area and long term it's too hard to project when, if ever, the prices will start to increase again.

[El Pinko]

39. Thank you for putting that so nicely...

I agree, but I would add that depending on one's situation, it might be a good idea to sell a Vallejo house and rent in Vallejo or a neighboring town for the time being. In fact, that's exactly what a lot of upside-down folks are doing as we speak (of course a lot are just walking away and letting the house be foreclosed).

[JCMach1]

2. Yeah, wait to sell that ENRON stock!

:(

It will come back, NOT!

[davidinalameda]

4. she makes perfect sense

if you don't have to sell your home right now, don't

[El Pinko]

5. With the qualifier...

"if you can wait at least a decade to sell".

Then I might go along with that...

[davidinalameda]

45. home purchases should be long term investments

I can't imagine otherwise unless you have the money to flip houses but the average person doesn't

[KharmaTrain]

6. Location, Location, Location

I'm used to seeing a lot of For Sale signs and empty houses here in the "booming" suburbs of Chicago...dozens of newly built houses sitting out in former cornfields that are empty. Property values in many areas have gone down...the claim is back to the 2002 price...which does little good for those who bought in at the peak of the bubble. Inversely, I drove through some areas where not only are the property values holding firm but still rising. The other day, the news reported the new Trump Tower is ready to start movingi in its first tennants...at a minimum of $500Gs for a studio...and the report said there's still a big waiting list to get in.

Just like the economy, you can't broadbrush the sub-prime, real-estate and credit collapse across the board. I'm sure I could sell my home (it may take longer than it did in past years, but I still get letters from Realtors) and will definitely finish way ahead of what I paid for this place.

This is also a good time to buy in...if you've got the cash. Realtors are willing to discount and wipe out all sorts of fees just to get the sale on the books.

This is not to downplay the serious problem with the housing market...and those in distress will go down the tubes, but it's all not black or white out there.

[El Pinko]

9. It may be a good time to buy in Pittsburgh or Dallas.

Is is definitely NOT a good time to buy in CA or the other areas I mentioned. They still have a very long way to go.

[KharmaTrain]

12. Also Good Time To Buy In NOLA...Of All Places

I was just "way down yonder", and I always like picking up the local paper and checking out the want ads and real-estate prices. I also talked with some locals and they told me how there's been a "Katrina bonus" (if such a thing can be said), that you can buy a home for half the price you could pre-Katrina...and this wasn't just in the city, but all over the area. Rentals are the problem...the shortage is bad for lower income...but a nice 3 bedroom can be had for as low as $100k. You can't even rebuild a garage for that price here in Pleasant Valley Sunday...

[nebenaube]

13. You may have it...

Urban dwelling price is rising, suburban dwelling somewhat stable, out-skirts dwelling... falling.

[El Pinko]

19. Urban areas like NYC, Chicago, San Francisco will definitely hold their value better than exurbs

These are very desirable and convenient cities with a lot to recommend them.

But some urban areas like Detroit & Pittsburgh have rock-bottom prices and don't look to pick up any time soon. Local economy counts for a lot too.

Downtown Miami's rows of high-rise condos are standing empty with depreciation worse than anywhere in the country. I don't think anywhere in Phoenix or Vegas is holding up...

Location, location, location is right.

[Lorien]

44. That's the situation here in my city (Orlando). Some areas 15-20 minutes

outside of the city ("The exburbs") are seeing homes dropping in value by a huge amount. But I live in a historic neighborhood within walking distance of city hall. When I bought this house 11 years ago the neighborhood was "improving"; it had been an section of town to avoid ten years earlier (drugs, poverty, gang violence), but when I bought in about 45% of the homes were remodeled and new restaurants and cafes were being put into once vacant properties. Now the area is about 90% remodeled. Condo towers are popping up, sushi and wine bars, small upscale grocers,boutiques and salons...and a massive new arts and theater center is planned for an area within a half mile. Prices have dropped slightly since the bubble burst, but the area is still growing. I think that the exburbs-those areas well outside of any major city that were cornfields just a decade ago- will likely become the most depressed areas, the new slums (price of gas being a major factor). I'm sure that many of the homes in those areas will become very affordable in the coming years, so if I were living in one of them now I certainly would be thinking about selling ASAP!

Even though I would like to move (to Asheville), I think it would be wiser to stay put a little while longer-at least until that Arts Center is up and running. Most of Florida is pretty hellish, so I'm not surprised that areas like Miami are chock full of "for sale" signs. Somehow I lucked out and bought into a blue area that functions a little more like a Northern city. :shrug:

Bottom line; if a person is planning on selling and moving to a new neighborhood, then they need to know the history of the area they'll be moving to, and find out what changes (if any) are planned for it before committing to anything. That may seem like plain old common sense, but it's surprising how often people neglect to do their research and end up regretting their decisions.

[dysfunctional press]

7. but as you said- that's your "guess"...

it's also possible that the economy COULD turn around at some point- a breakthrough in alternative energy for homes/cars here, progressive legislation there, we get things back on the right track, and even californy real estate could change it's tune back to a happier one.
and/or- with the weakity-weak dollar, it may not be too long before people from other parts of the world, or even canada, start buying up properties in places like miami or socal as a second/vacation home. small groups of people could even go in together, and buy a unit(s) to treat like time-shares.

anything could happen. unless someone absolutely needs to sell right now for economic reasons, it might be prudent to at least wait to see what happens in november at the ballot box.

but there are no guarantees one way or the other. it can all be a real big gamble whichever way you look at it or what a person decides to do.,

[El Pinko]

10. This is my optimistic guess.

Even if the economy does turn around (and I hope it does), lenders are already essentially redlining the bubble areas. The loan money is simply not going to be there for a great many people without very big down payments.

The bubble was a product of irresponsible lending standards, massive amounts of (foolish) foreign capital and a speculative fervor. It ain't coming back, even if the economy recovers - and that's a good thing. The bubble made housing unaffordable to far too many people who were not willing to take out liar loans and subprime ARMs. Good riddance to the bubble.


Of course, there is bound to be another bubble. It just won't be in housing...

[Zynx]

26. I agree that housing won't recover for some time, but here's the thing:

1. Predicting where prices will finally equilibrate is difficult. $250,000 sounds reasonable, but I could come up with $300,000 just as easily if I tweaked a pricing model.

2. If you push people who might need to sell in the next few years to sell now, the pricing problem will get worse in a hurry. You know what happens in any market when supply vastly exceeds demand? Prices plunge and plunge hard.

3. The problem right now is that you aren't even really getting what your house is currently assessed at. Granted, you shouldn't because the price is far too high, but it is very uncertain as to what you will get right now. House prices in California may well be 33% lower than they are right now 18 months from now, but at least you may know what you are going to get. If everyone rushes for the exits now, there's no telling what you might get.

[robcon]

14. Speculate all you want about housing prices

If you think housing prices are going down, by all means sell now.

If you think housing prices are going to go up almost everywhere (as I do) hold on if you can.

But the main thing is to accept that you are speculating that the price will go down or up, and your speculation is no different from anyone else's, i.e., the "truth" is not knowable in advance. You're just guessing, based on your outlook for the future, and your speculations say that the market doesn't currently reflect your beliefs.

[El Pinko]

15. With incomes stagnant, credit dried up and commodities sky-high, who will buy these houses?

It has very little to do with my beliefs. It has everything to do with what people can pay.

CA median house price is still almost 8X CA median income. Without very creative financing, such prices are not sustainable. I called this as a massive bubble in 2004 when friends were all telling me to "buy now or be priced out forever!".

Anyway, we'll see soon enough...

[El Pinko]

17. Sorry, I meant to include this link/ citation for current median CA house price.

http://www.knbc.com/money/15694312/detail.html?rss=la&psp=news

[SoCalDem]

18. If you don't HAVE to sell, it's good advice

We have been in our house since 82, and have ridden out other "upside-down" periods..

BUT, if you have used your house as an ATM, it really doesn;t matter that much..you're screwed either way..

I know a couple who have re-fied SEVERAL times, and now "owe" about $400K on a house that "might" sell for $280K.. They have a choice...pay the $2500K a month and sit tight until prices go up a bit (and still be upside down..just not so much)..or bail out and rent a house the same size for about half that much..(creditworthiness is an issue, but as more and more houses become vacant, nervous owners will start relaxing their standards)

[Zynx]

22. It's similar to why you don't sell stocks when a panic is underway.

You don't get a price that even reflects market conditions. You may not even get what your house is supposedly worth. Buyers ave been sitting on their hands in many sales just waiting for people to slash far below the asking price. While prices may well be lower, the market may at least be more stable and you can be more certain of what price you will get.

[El Pinko]

24. This is not a panic. It's the beginning of an adjustment back to historical trends.

median house price = 3x local median income, 4X median income in "desirable areas".

Unprecedented lax lending standards and speculative fervor threw that out the window for 6 years, to the point that CA median price stood at TEN TIMES median income.

The foreign investors who bankrolled those CDOs are NOT coming back. The lenders are redlining depreciating areas, income is not budging and prices on all other goods are through the roof.


If I was in a non-bubble area I would not sell right now. If I was in a bubble area, I most definitely would. I'd much rather eat a $50K loss in this volatile market than eat a $150K loss in the stable market of 3-5 years from now.

[Zynx]

29. It is the housing market's equivilant to a panic.

Banks will not provide financing, buyers will not buy unless prices are cut dramatically, and sellers in many cases are cutting in desperation to move thier houses.

Panics can be part of the price adjustment process, but they are not the environment you want to sell in unless you absolutely must. Even if your house has been knocked down to $400,000, there's no telling that's what you will actually get right now. Granted many areas are still working somewhat orderly and you can get close to your assessed value, but in others there is no chance and you have to mark that bastard down.

[L. Coyote]

23. Each neighborhood warrants its own decision.

Some markets are not falling, others are in real danger of falling like a rock!

In Kansas, you can buy nice homes for $20 K. That is what to expect with low demand!

[El Pinko]

25. I've seen some lovely homes in Pittsburgh advertised for $29K.

I don't think I could deal with Kansas, but Pittsburgh, I could MAYBE handle...

[L. Coyote]

30. Noble brownstones in distrerssed areas are near free!

Meawhile, around Corvallis, OR, prices have not gone down.

Pricing is all about supply and demand.
This is an opportunity for some.

I sold out of real estate at the top of the bubble,
and prices are down 1/3 there now!

Now, interest on savings is near zero.
Expect investors to move back to property.

[aikoaiko]

33. I'd like to see a link for a nice home for 20K.

[aikoaiko]

32. Rent it out if you can.

and buy a smaller house.

[El Pinko]

34. Problem is that in bubbly areas, you sometimes can't get half your payment from renting it out.

That's been a big problem in CA -people who can't afford their $3000 payment are shocked to find that their single-family home gets $1900 tops in the rental market.

If you're in a market where you can make it work, I agree, go for it...

[DadOf2LittleAngels]

36. Sorry but I disagre with both of you..

1) If everyone start jumping ship today the effects will be catastrophic.. If you can afford your home *hold it* even if its not your dream home...

2) People who cant afford their home *sell*

[El Pinko]

38. I am not saying "everyone should sell."

Prices will probably hit 2006 levels again, but the thing is it will probably be another decade or more before that happens, unless wages start to rise, which would not be in keeping with the last 20 years...


I'm just saying that if someone in a bubble area is expecting prices to be better in 2 or 3 years and thinking of waiting that time frame, they'll be disappointed.

If they're ready and able to wait a decade or more, it may be worthwhile.

[kwassa]

40. If the real estate experts don't agree, and they don't ....

no offense intended, but why should we take your advice? On any given day we can get experts giving contradictory advice.

This isn't a bubble, it is a correction, and it is highly dependent on location.

The Washington Post did a huge analysis yesterday on the DC Metro region, zip code by zip code within counties. The worst had decreased 18% in value last year. Another area increased 19% last year in value. Many were unchanged, others increased or decreased slightly. There is no single simple answer.

[El Pinko]

42. None taken. Who the hell am I, anyway?

But it most definitely is a bubble - AND a correction, and it is just starting, like it or not. I'm not surprised that there are some strong areas in DC metro. The same goes for the most expensive SF/San Jose area neighborhoods, they are still appreciating, and since the rich continue to get richer, they may continue to do so throughout. But the majority of us don't live in that world, and nationwide median house prices are falling at a record pace.

Again, I'm a nobody and perhaps a know-nothing, but I strongly suggest that before listening to a stooge for the NAR, which has a vested interest in puffing up the housing market, I would do some online research about the long-term trends of housing prices vs. income and housing prices vs. rents and see just how far the 2000's veered away from the long-term trend. Look into where the capital for subprime and option-ARM loans came from and what the likelihood is of another source emerging to replace that capital now that its gone.


The "experts" were saying in 2005 that real estate NEVER goes down because they aren't making any more land, so I think I'll wear my "layman" badge with a bit of pride in light of that...

[Mountainman]

37. I may be lucky. I have a house for sale in the mountains east of Bakersfield.

The local deputy sheriff has an office just down the road. He likes our house and the county of Kern may buy it for him.

[Vinca]

41. That advice isn't so crazy. I imagine it depends where you live

and what your circumstances are, though. My husband has been in the real estate industry for over 30 years and we've seen values go up and down a few times. This may be the most severe dip in recent history, but it will turn around again . . . eventually.

[Xithras]

43. Not poor advice. Many bubbly areas are already seeing a 50% drop.

I live in the northern San Joaquin Valley in California...aka "ground zero" for the meltdown. There's a home right up the road from me that sold new for $175,000 in 2001 (I know this because my wife and I toured the models when they were first going in). The home sold for $450,000 in 2006, and has been sitting on the market for about a year. The current asking price? $225,000, and it's bank owned. I'm thinking about picking it up as an investment property if bond rates drop a bit (the prime has dropped, but lending rates are still in the upper 5's to low 6's, and I want it to go lower first). My own home, a couple acres of bucolic riverfront property that I picked up for a hair over $200k about a decade ago was appraised at just over a million during the peak. It's substantially under HALF of that now. Easy come, easy go I guess. My wife wanted me to sell and pocket the profits at the markets peak. I kind of wish I had now. While it doesn't get discussed much, the price inflation also shows the influence that corrupt real estate appraisers had on the market. There is no way my home was ever really worth a million dollars, ESPECIALLY since the house itself would be considered a pushover by any purchaser with the means to spend that kind of cash.

In the really bubbly areas, prices have already dropped significantly and are unlikely to drop a great deal more (barring economic implosion or massive interest rate hikes). There may be a bit more settling, but the bottom HAS been found and there ARE buyers on the market again. The problem for sellers today is that they're competing with a huge standing inventory and banks that are desperate to unload those homes. If you don't need to sell, you're better off waiting a year or two until that inventory clears.