My wife has wanted to move into town for quite some time so that she can be a little closer to friends and to our other activities. I've been reluctant to move for a few reasons. First, I think if we bought now, it would be like trying to catch a falling knife. Second, it would be a longer drive to work for me. Third, I don't like change. (None of these are her fault. 😉 )
And just as much as I feel pressured when my wife tells me about a good house that's come up for sale, she probably feels frustrated by my reluctance to take any serious action on it because “this is just the beginning of the downturn” and “there will be more, and better, deals later.”
Actually, regardless of how far I feel the housing market is going to go down, I don't really know. I can get warm fuzzies that it's getting to be more of a buyer's market, but I won't really know until I start tracking home prices. Tracking prices is pretty straightforward, and has some advantages:
- It's easier to recognize a deal when it comes along. There is a huge amount of information literally a mouse click away, and tracking the price of desirable houses over time shows clearly what these houses were being offered at. Rather than sensing that a house is a good deal, I can see that it is.
- It's active. It's searching with a purpose. It's still basically window shopping, but I know which stores I'm going to.
- It's focused. We're looking for a house to move into. This narrows our search and makes it more time-effective.
Here's how we're going about it now:
- I signed up for an account at Realtor.com. This allows me to save searches — and have daily or weekly e-mails sent to me — filtered by ZIP code, price, number of bedrooms, etc.
- Since my wife is pickier (!) she chose the acceptable candidates among the few dozen houses that met the search criteria that Realtor.com allowed. We could have fewer results to go through if we filtered by square footage, but not all of the listings include a square footage. So, we pile through some more listings but turn up a few more candidates. We eliminate most split foyers since she really doesn't like those.
- We build up a spreadsheet with the following columns: ZIP Code, Address (to identify the house), Subdivision, Bedrooms, Bathrooms, Square Footage, Basement (no, yes, or split level), Garage (no, one-car, or two-car), and Asking Price. We make one row per house, and add columns at the end to track the asking price over time. We also list the houses that meet the search criteria but don't meet our criteria so that we don't have to re-visit those listings each week. The columns are the criteria that are important to us; if you do this, you may have other columns you want to consider.
- Houses keep getting prices added as long as they're listed. If they're taken off, then we keep them to see if they come back on again.
- Later we may add houses listed for auction or on other services, since some sellers are going the route of national real estate listing without the commissions.
Here are some of the measurements that can be done from these numbers:
- Number of listings. The number of listings can fluctuate with the seasons (winter is slower). If prices are going down for similar properties, or if the prices for properties we're following are going down, then an increase in the number of listings could be good, as it means people are coming to their senses and trying to sell for what they can get.
- Time on the market. We've gotten a few new listings, so we can see how long they stay on the market. Knowing this would help us should we want to make an offer. If the house has been on for a good long time, we can offer more aggressively (lower).
- Price per square foot. This is a rough measure but a useful one. If we really can buy more house for our money, we should see a reduction in the price per square foot.
The nice thing about this method is that it's free. Once we get the hang of this and get closer to making a decision we may sign up for www.RealtyTrac.com to get a handle on foreclosed and bank-owned properties. We'll probably pull the trigger on this when we are in a better position to make offers.
Tracking prices takes a little time but I'm sure this will help us to make a wise decision when we decide to look in earnest.
Another good metric to track is discount from (or premium on) assessed value. You can take a home's sold price, and calculate how far above or below the auditor's assessment, as a percentage of the assessed price, the sale was done. That makes it easier to account for amenities beyond square footage.
I was in the same situation a few months back. While we both wanted to buy a new home, her schedule was faster than mine. We had the added pressure of having our 3rd child on the way, living in a 2 bedroom condo. I kept saying we should wait, but you know how it goes. We bought early summer, and paid about 40% less than the peak. So while we got a good "deal" at the time, I'm sure it's worth at least $50k less now. The mortgage is not a problem, but it's hard to deal with the dropping value. Same goes for the condo which we still own. I know it wasn't the best financial decision, but not doing so would have been a bad decision for our marriage. What are you going to do…
My aunt runs a lot of real estate business down in FL. She says the best thing about it, is that it is more fun for her clients when they get involved. Plus, clients really get what they want when they become as active as you seem to be. I know you guys will get what you are looking for. You are doing more than probably 90% of people out there.
Indicators of market distress continue to move in different directions. Foreclosure activity is at record levels, financing with adjustable-rate mortgages is near the all-time low as is financing with multiple mortgages.
This post describes an appropriate plan-of-attack. There was some uncertainty about the current housing market, so you have begun a procedure that will give you a much clearer idea of the direction of home prices in your area of interest. Pro-activity similar to this yields results that are of high value.
You have really gone all out to find the best deal. I have always been a shoot from the hip type of guy and jump on whatever seems like a good deal at the time, do I always get a good deal, probably not, but I think it saves me a lot of time from searching and when you run your own business, time costs a lot.
“I think if we bought now, it would be like trying to catch a falling knife!”
I love this! One of the best colloquialisms I’ve heard yet to describe the current mortgage fiasco!
My wife and I used a similar tracking method 3 years ago when we were looking at purchasing a home!
Unfortunatley, at the time, prices were still going UP so we were more interested in spotting a good value rather than trying to pick one up at a rock bottom price.
In the end we decided to build our own home (hiring a contractor) by that time the new construction market had started to die off and we got a favorable deal (even by today’s standards) on a custom home.
Good luck with your future home purchase, I hope that you get a “might bargin”! HA!
Ben
According to OFHEO, prices are down only 2.6% from August 2005. The S&P/Case-Shiller index puts the decline at 17.0% while the median asking price implies a 29.7% logarithmic decline in San Diego.
Your situation sounds just like my brother-in-law’s and sister’s situation. They are having a hard time looking at homes for sale because every time my sister finds something she loves my brother-in-law wants to wait a little longer to see if prices go down. I’ll definitely have to give them some of your advice to see if it helps. How long should they track prices before deciding what the trend is?