Housing Delusion: It’s Not 2004 Anymore
A recent article in the soon to be defunct Boston Globe caught my eye today. “Low mortgage rates, falling prices, and a tax credit are luring first-time buyers into homes they can afford” reads the headline. I made it through the first page without laughing as it was pretty reasonable.
“I wanted to snap something up,” said Rehman, a psychiatry resident at Brigham and Women’s Hospital in Boston. “It might get lower, but I still feel good about my decision.”
This guy seems to have reasonable expectations. He admits prices could go lower but he wants to buy now due to a pending marriage. Completely reasonable.
Then I clicked over to page 2 and read about this guy:
“The $8,000 credit is definitely huge,” said Jamerson, who sells plumbing supplies. “We are looking to buy cheap and in four to five years make a nice profit.“
Seriously dude, 2004 called, they want their irrational exuberance back. Even those optimistic on real estate prices are predicting an L shaped recovery or the proverbial “dead cat bounce.” When prices finally do stop falling, they are likely to flatline for 5 or more years. If this guy is expecting any “profit” let alone “nice profit” in 5 years he is going to be severely disappointed. For what it’s worth I think it’s extremely telling that the particular development in which he is buying, 5 of the 6 buyers are “first time.” This means the builder has convinced 5 households with no experience in actual homeownership to buy into his development. Why was he not able to convince more previous homeowners on the value of this particular piece of real estate? I’m guessing a combination of taxes and association fees make this a less than stellar proposition but without the benefits of experience these people don’t know any better.
Surprisingly this kind of article is common. Stories about people convinced it’s a good time to buy and doing so. Quotes from realtor’s stating how the combination of low prices, low rates, and incentives make it a great time to buy. But what’s missing? Articles about experienced landlords and investors buying. Where are those stories? Stories about people with a track record of making wise real estate decisions? I won’t be convinced we have hit bottom until we start seeing stories about those people. If it’s a such a great time to buy, where are the investor’s?
