Buying a House (Timing)
I’ll start with a small introduction to the community. My family and I recently relocated to the inland Northwest (US) in anticipation of utilizing the area for the abundance of outdoor activities and temperate climate. Thankfully my wife has an advanced degree in the health-care industry and solid (as possible) employment. I on the other hand recently had career ending surgery and am rehabbing, but the silver lining is with my free time I have become more aware of the impending situation our world faces. I have found this forum and the crash course both enlightening and a great synopsis of views I have been forming over the last few years. I hope to network with like minded individuals and benefit from increased information provided by the members of this forum.
Here’s the situation, we are renting (thank goodness). The real estate market here has shown listing prices drop about 15% in the last year only. I live in a tourist based area and the bubble has been slow to arrive here. We will have liquid assets for a down-payment of 10% on anything we want by early summer and are saving several thousands a month right now. Unfortunately we are both fairly fresh out of school (burnt through the 401K money to live through school), with nothing but cash, a few coins, and some precious metal stocks in hand.
My question is when to get into housing? Of course there are too many specifics to totally understand my situation, but I would appreciate thoughts. I need brainstorming from folks who have experience and wisdom. We are planning on a smaller house for the three of us with several acres, a creek, pasture, and out buildings. Should I be worried about waiting too long by being greedy or getting in too early and getting burned? I’m afraid that any action or reaction in the world right now could make finding financing more difficult. Also to give you an idea, the 200,000 – 350,000 is the price range, credit is high 700’s for both of us and we sold our last house a year and a half ago. All thoughts welcome , Thanks.
I’ll let you know what I’m doing to ‘guess’ when housing has bottomed out in Chicago, where I live. You can find Case Schiller index info for large cities, so you can look at the data for the nearest one to get an idea when your area’s housing situation has really bottomed out. Take that data and plot it in a graph. Then, take the starting point for the oldest data, and adjust that figure by the CPI for each month. You can find monthly data in the link below. Once you plot that data, you’ll have 2 lines then, the CS line and the inflation adjusted (IA) line. I can tell you what it looks like for Chicago: from 1987 (when the CS data starts) to about 1999, the CS line hovered just above the IA line. (And historically this is typically the case, housing barely beats inflation) Then in 1999 the CS line started getting much higher than the IA line, and the distance between the two peaked in 2006.
You’ll know the housing market has bottomed out when the CS line and the IA line are much closer to eachother, and the CS line will probably dip below the IA line in fact, since large housing bubbles usually have an over-correction. My projection, based on how fast the CS line is now decreasing vs how much the IA line is decreasing (since we’re experiencing deflation right now) is that Chicago’s market will bottom out hopefully in 2012. That’s all a guess of course.
Another, more difficult method I’d like to try, is to track inventory versus turnover. It requires getting much more detailed info though that may not be easily available. Ultimately prices will start to pick up when inventory is more reasonable. You could take the total inventory, and divide by # of housing sales in a month, and you’ll see how long inventory will last. For example, 100 houses for sale, but 10 sold last month, means you have about a 10 month over-hang. Historically I think anything more than a couple months means prices will go down. Right now I know inventory is pretty low, but the number of ‘normal’ sales (not foreclosures or REO sales) is extremely low, so relatively inventory is actually high.
Also iterest rates are something to think about. Right now rates are low, whereas they might go up into the near future. Many real estate people say that interest rates will go into the double digits by spring 2010.