Is this the bottom of the housing market?
You read it right folks… I’m in! Big Time! Go long real estate! Get back in the water! Prices can only go up from here! … Booyahhh!
All joking aside my wife and I recently closed on our new metro Boston area home and are now busily shuffling stuff around, making regular trips to “The Depot” and IKEA and re-acclimating ourselves to the demands of home ownership.
This bit of news might come as a shock to longtime PaperEconomy (and PaperMoney) readers as I have consistently been one of the most negative and bearish bloggers on housing for the better part of the last five years.
But, be that as it may, we were bubble-sitters waiting for an opportunity to turn our good fortune from selling at the literal top of the market in late 2005 into a situation better meeting our specific needs.
That opportunity came late last year when a house showed up on the market that can only be described as a near duplicate of our old home except with 2.75x the property, a substantially more attractive and updated exterior and a location within the metro area nearly 15 miles closer to Boston proper.
In terms of price, our results were telling.
We paid no more (in inflation adjusted terms) than we paid for our old home which we purchased back in 2000 while the sellers took roughly a $40,000 hit from what they paid back in 2003.
So, this was quite a trade particularly given that the town is not generally known for screaming bargains.
In any event, I still believe that the Boston area is likely to see home prices decline further.
Our decision to buy now was more a function of our genuine need (two steadily growing kids and two dogs) for more space, our good fortune of having a very large down payment (changes the rent vs. buy argument a bit), the ridiculously low interest rate environment and lastly $8000 cash!!!!
In a way, our purchase represents an instance of the function that is supposed to take place during a market clearing process whereby weak and distressed asset holders are forced to discount, take losses and yield their assets to stronger buyers who are fundamentally more prepared for taking on any additional risks brought about by market dynamics.
I’m convinced that we could see prices slide further in Boston, possibly 5%, 10% or even 15% over the long run... especially in real terms, but in any case it is virtually impossible for my situation to ever end up distressed or “upsidedown” and I’m prepared to shouldering a loss of even 15%.
All in all, the purchase simply made sense for our particular situation.
Good luck to all other bubble sitters, especially those in the Boston market that have withstood endless ridiculous bullish housing propaganda and the massively seasonal swings of our market and remember that all available evidence suggests that bottoms to residential real estate markets can take several years to fully form so although you may at times feel that “time is of the essence” there is always plenty of time to make sure that your purchase is right for you.
Best to all!
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