This is a tricky question, since I am expecting a second down leg in the business cycle.
That said, word is that banks are just throwing houses out their corporate windows and taking any price they can get. That's why housing sales are up--and house prices are down.
With the selling pressure occurring now in the housing markets in Fl and Ca, the thing to do is wait for your price, and only buy houses (for investment) that will result in positive cash flow.
With positive cash flow, you can wait out any volatility, and hold on for the BIG long term trend, which will be major new inflation.
PLEEZE do your research on all this stuff:
ReplyDeletehttp://www.doctorhousingbubble.com/
CW
Hi Charles,
ReplyDeleteYou know it is funny, I just saw an ad for an LA condo with about the same sq footage for $239,000.
Your link sounds like some kind of outlier, or an asking price that no one is going to pay.
Anyway, I did say a purchases should be cash flow positive. I don't see how that one will come close to making it.
'N check out these beauties at the bottom of the page...
ReplyDeletehttp://www.doctorhousingbubble.com/page/4/
CW
Another consideration is pending resets and what affect that may have on banks releasing stockpiles of foreclosures. There were two major spikes in ARM purchases during the bubble. The first wave of resets was in spring 2008 (5-year ARMs from 2003 and 3-year ARMs from 2005, the peak). The next wave is spring 2010, with the 5-year ARMs from the 2005 peak resetting and the 3-year ARMs from 2007, the last year before the bubble began breaking. I saw a graph of ARM purchases on thehousingbubbleblog.com ages ago. Banks could be dumping their current inventory in anticipation of another wave of foreclosures. This could mean two things for buyers: 1) the price today could plummet next year or 2) they may be in a really great bargaining position with a very, very motivated seller.
ReplyDeleteIf you buy reasonably, as you said, then there's not a lot of risk. The old rule of thumb was 2x income for a house. Then again I don't make nearly enough to buy a house in Cali even if prices dropped by half again, so it's all academic to me. :)
You must simply look at the potential return on investment (cashflow as Bob puts it). If you can make a decent (competitive) return by simply buying and renting then do it.
ReplyDeleteIn my are of CA (San Diego) the entry-level homes are being snatched up because the prices have come down to the point where once can get a 9% return when paying cash.
The mid to higher range homes still have some ways to fall price wise before they can make sense from a cash flow standpoint. For this reason they are still not selling.
So the answer? Yes, it's time to buy in the entry level price ranges but sit tight in the mid to higher end markets.