Why it's a bad time to buy
A reader who found me on Trulia asked for my opinion about whether it's a good or a bad time to buy. Because I'm a sharing kind of gal, I thought I'd post my thoughts here for everyone to discuss. Note that comments toeing the party line with the usual "It's a great time to buy, interest rates are low, homeownership is the surest path to wealth" garbage and no supporting data, or comments insulting me and calling me bitter because I can't afford to buy, will be summarily removed.
- The median household income for Alameda is in the high $60Ks. The median home price is still in the high $500Ks, for a 9-10 multiplier of income. That's not sustainable, as we are seeing today. The historical norm is about 3x for the country, and between 4x and 5x in the Bay Area. Until prices come down to where they belong (and they always do; the 100+-year Case Shiller home price index shows a return to the mean after every price runup), it won't be a good time to buy.
- While the subprime mess is mostly winding down, we're only beginning to see the second giant wave of defaults
that's about to hit (see this Calculated Risk article for example). So far, the low-end market has been hit hardest, but
we're about to see a huge spike in defaults in the almost-prime Alt-A
mortgage contracts entered into between 2005 and 2007. Those are
typically in the higher-end market, and Alameda has plenty of those
kinds of houses. We're seeing a few of those already (esp. in the big
new development in the West end near the army base) but I am betting on
a large influx through 2010. So if you're thinking of spending $600K
now, you might actually get a much nicer house for the same price tag
next year.
- The US is going to shed many more jobs until 2010. Everybody
seems to agree on that. This means the expected foreclosures from bad
loans will be supplemented with "normal" foreclosures from people who
might be able to afford their homes but lost their jobs. This will put
some downward pressure on all prices (see this New York Times article for reference).
- A segment of the population is believing the hype from the NAR and jumping into the market again. We're seeing bidding wars and sales over asking price in a mini-bubble. This means what looks like a "deal" winds up selling for a lot more than it should. This will die off as the selling season winds down, but buying in a bubbly market is rarely a good idea.
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