Plunging and Soaring

Just a couple of years ago I remember opening the local newspaper and reading an article about how the average median price of a home in the Palm Springs area had SOARED to $432,500. Far out of reach of the average working family in the Palm Springs area. Just this past week I read the same newspaper and was surprised to find that housing sales were down 27% and the average median price of a single family home had PLUNGED to $425,000!

Somewhere in all of this soaring and plunging - beyond the hype of the media adjectives we find the truth of this whole situation. From 2004-2006 prices in the Desert rose 100%. So when the media reported on the rise in housing prices they were not wrong. However, now that the numbers are adjusting the drama with which the media portrays the drop seems out of proportion to me. The truth of the market is that good homes in good areas are still selling for fair prices. The difference between $432,500 and $425,000 is just not that great. We are experiencing a correction in the market. In fact most cities in the valley are in the single digits for price declines.

The reason that there are lots of homes on the market is that some people made bad decisions and bought the wrong home for the wrong reason. Many "flippers" have been caught at the tail end of the rising price cycle and are anxious to get out of what they got into. Some builders also overbuilt they were caught with excess inventory as credit restrictions tightened.

We have to look at the bigger picture and realize that prices could not have continued only to rise- who could have afforded a home when prices were rising three times as fast as incomes - on average? Banks could not continue reckless lending practices - the day of reckoning always comes when you throw caution to the wind as some of them did.

I was struck but the numbers in the two stories and think that it points out, rather clearly, the reality - rather than the hype- of the current situation we are in.

So You Want To Make Money With Real Estate

I am surprised when I find people talking about waiting for the market to get better before they get into real estate. Wait? Why wait? Everyone has probably heard the old wisdom that you never buy the most expensive house in the neighborhood, but how about this: You make money when you buy real estate - not when you sell.

That's right. When you buy a property right you set yourself up correctly for future profit. Really, isn't that what the problem is right now? Besides bad loan choices we had people who were buying assuming they would realize 10%-12%-15% appreciation in a very short period of time. When the market is at an new unheard of highs perhaps that is not the best move. It is easy to Monday morning quarterback the whole situation but I think if we dig deeper we realize that the old truths - buy low, sell high - don't buy things you can't afford, etc. all hold true. It is not sexy or adventurous or trendy but it is the truth.

So that brings us to today. We have buyers sitting out the market. You have to wonder why? Besides some great deals (no, not every home is a great deal - your trusted Realtor can help you out here.) you have some still very reasonable loan programs and the rental market is going up. In other words now is the time to buy and hold so that you can sell high the next time around.

One last thing - I have started to hear lately that some people are waiting for the market to go down more so they can buy even cheaper. Well if you are purely investing and are totally unemotional about the properties you buy - then yes, that is probably the best strategy for you. Even though report after report shows home prices on the whole actually inching up - if you want to look around for total fire sales and buy those that is certainly a way you could go. However, if you find a good buy - are ready to buy and want a certain property or certain neighborhood you should move forward. Waiting will probably not get you the property you are interested in or the neighborhood you want. You may in fact wait too long. Just as some buyers waited to long to jump in a few years ago you could wait so long that the "deals" in the neighborhoods that you want the houses that you would really like dry up.

As an example of this one neighborhood that I watch on a regular basis had about three "fire sale" homes about six months ago. Then there was one really good deal about 2 months ago. Now there is extremely low inventory. Some of the homes remaining on the market have actually raised their prices! The remaining homes on the market all have some sort of drawback to them.

So as always timing is everything is now the time for you?