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Sell Low, Buy Low

Is now the time to make a move?

The old mantra buy low and sell high doesn’t apply to real estate if you’ve bought in the last few years.  However, for anyone thinking of moving “up” to a more expensive home I would suggest they consider a new paradigm, Sell Low and Buy Low.

When it comes to real estate there is no shortage of experts telling us the sky is falling. On the flip side, real estate professionals and the National Association of Realtors (NAR) seem to always be pushing a positive message regardless of the state of the market.  So who are you to believe and what’s really happening in our backyard? 

Real estate, especially one’s own home, has long been considered a good investment—the American dream many would say.  But every investment has risks and as often stated in investment advertisements, past performance is no guarantee of future results.  The tumultuous economic events of the last few years sparked by the loss of confidence in sub-prime mortgage backed securities are unprecedented.  No one can say with certainty what the future holds for the real estate market, lending practices and the state of the economy. 

However, we can take a look at an index that measures home values and develop a hypothesis of our own.

The Standard & Poor’s Case-Shiller Home Price Indices arguably are the most frequently cited measure of the U.S. housing market. Developed by two economists, they measure the value of like homes over time. The housing market goes through different product cycles affected by the economy and consumer demand. At times there’s lots of new construction, at other times large houses were in vogue, today people are leaning toward practicality.  When comparing homes over decades it becomes a case of apples and oranges. 

If a ranch was built in 1955 in Katonah can its percent of value appreciation be accurately measured against a large contemporary colonial built in 1982? Mr. Case and Mr. Shiller thought not and developed their indices comparing repeat sales of the same homes in an effort to study home pricing trends as opposed to market averages that until then was the norm.

The most often cited S&P/Case-Shiller index is the U.S. National Home Price Index.  But Case-Shiller also publishes individual indices for the large metropolitan areas and even provides data within home value tiers.  In the case of New York, Case-Shiller includes the communities in the tri-state area that are commutable to NYC and they exclude condominiums and cooperatives as well as new construction.  For the purpose of trying to understand what market values have done in the Bedford area we will look at the $449,048 and above price tier, the highest price value tier in the Case-Shiller index (See Attached Graph).

Its no surprise that what the index shows is in keeping with the general understanding of what the market has done.  Home prices for decades rose in the United States at a healthy rate of return until 2000 when prices catapulted into the stratosphere.  Beginning in 2006 home values began their decent and appear to still be in a downward trajectory.  However, it’s the long-term trend line that I’m most encouraged by.  What it shows is that we are currently well below where home values would have been had we not experienced the unrealistic price gains of the past decade.  In other words, prices today are artificially low similarly to when they were artificially high a few years ago.

When to buy a home depends on each person’s individual situation.  However, if you plan on being in your next home for at least 5 years the evidence seems to point toward buying now being a good idea.  Some are looking for the bottom, wouldn’t we all like to know when that is?  Others feel we have reached it.  As with most investments, once the bottom has been determined, the majority of the upside value appreciation opportunity has been missed. 

If you're contemplating buying up to a more expensive home you'll likely be selling your existing home at a loss from its market-value highs, however, the appreciation that we are likely to see in the future as the market once again approaches its long-term trend line should justify a move today.

Lastly, interest rates today are at historical lows and a future rise in interest rates would eliminate the potential benefit of waiting for prices to possibly go lower.

 

Nelson Salazar is a real estate agent in Northern Westchester with Coldwell Banker Residential Brokerage.  You can find him on Facebook or visit his website or email him at Nelson@NelsonSalazar.com.

Carlos K Dragnub June 15, 2011 at 11:15 AM
Well...the author's opinion has to be taken with a grain of salt, because his livelihood is dependent upon you buying a house, so he can make the commissions. I'm sure many RE agents are honest (unlike the NAR which is TOTALLY untrustworthy!!!), but you have to remember the words of Upton Sinclair "It's amazing how difficult it is for a man to understand something if he's paid a small fortune not to understand it." I 'm certainly wary of this statement: "...if you plan on being in your next home for at least 5 years the evidence seems to point toward buying now being a good idea." That was the old rule of thumb. It took 19 years to recover from the housing malaise of the Great Depression and house prices have dropped further during this Great Recession (33% (so far!!) vs. 31%) and most experts think we will bounce along the bottom for a while, so 5 years is really speculative. The fact of the matter is, NO ONE knows what the future holds, but I feel a lot better getting my advice from people that don't stand to profit from my home purchase. The dark side of our capitalist economy is greed. We must protect ourselves from those who would profit from us at any cost (to us). Carlos K Dragnub carloskdragnub@gmail.com
Ross Revira June 15, 2011 at 11:26 AM
Hey Carlos you must get your truth from the government because they are not greedy .
Carlos K Dragnub June 15, 2011 at 12:26 PM
Ross - I actually find the people in government to be some of the greediest people you could know. It would be nice if you actually commented on the article instead of making vague comments about me. What is your opinion about the information in this article? Carlos
Nelson Salazar June 15, 2011 at 12:59 PM
Carlos, thank you for your comment. Real estate agents get paid for the work they do regardless of whether prices go up or down. I offer my opinion and market data and hope that readers form their own opinions. It's foolish to provide false information as we have nothing to gain from it. If I say prices will go up in order to encourage buyers to buy now it also has the negative affect of discouraging sellers from selling now. The most lucrative investments are made when a few have the foresight to go against the tide of popular opinion.
Ross Revira June 15, 2011 at 01:46 PM
Carlos I have no problem with the writer's OPINION. To belittle his opinion because of your bias speaks volumes. Did you loose your house by being over leveraged? Has anybody put a gun to your head to sell or purchase real estate? I guess you must work for free because to accept payment would be greedy. You must long for the good old days in the socialist workers paradise of the Soviet Union.
Carlos K Dragnub June 15, 2011 at 02:04 PM
"Real estate agents get paid for the work they do regardless of whether prices go up or down." Yes, they do, but they make more when prices are high (that darling 6% commission your profession is clinging to) and they also make more commission when they sell more houses. I have the cash to buy a modest home and furnish, but I'm waiting (as are a LOT of us). We don't see a house as an "investment." I'm so happy I didn't listen to RE agents during the early part of this decade when some actually called me foolish for not buying. "I was missing out," they told me. Yes, I certainly missed out on a possible financial disaster for me!!! PERHAPS, you are sincere in your words (that still doesn't make it correct), you have to admit that your profession hasn't always had clients' (or the the country's) interests as a top priority. Here's a nice little study (called "Trust, Expert Advice, and Realtor Responsibility") that may interest your readers: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1783050 (Click where it says One-Click Download; it's in PDF format) Carlos K Dragnub
Carlos K Dragnub June 15, 2011 at 07:17 PM
Ross - I'm simply trying to warn people about the perils of taking the views of someone who may have other motives than your best interests at heart. Your tone makes me think you have a job related to real estate (RE agent, mortgage broker, builder, etc.). I never heard of something so absurd as your issue. I step in and remark that this housing crisis is unparalleled in history and this may not be the right time to buy a house as the author (who, also stands to make personal gain from more sales) states. Shiller of the Case-Shiller index (referenced in this very article) said at a recent housing conference that we are in uncharted territory and it wouldn't surprise him if the housing market went down another 25%. Yes, the author has the right to make money, but the public is entitled to hear the viewpoints of experts. I have another view and give a warning about the perils of what is said in this article and I'm apparently longing for socialism? Did you like the Great Recession and what it did to this country? You should read the article at the link I provided to see how Mr. Salazar's profession contributed to bubble. If you don't like reading, I suggest you rent "Inside Job" or watch Dave Faber's documentary on CNBC called "House of Cards." Perhaps, you have heard of "Jim the Realtor". He has gained fame at lampooning the culture of his profession, while doing quite well as a RE Agent. I guess he's a socialist? Carlos K Dragnub Dragnub

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