Should I Buy?


Remember the real estate bubble? Remember the mind set of people then? How many conversations did you hear in which all the participants sounded like real estate experts?

I remember overhearing one such conversation. I was having lunch and really couldn’t avoid overhearing the conversation at the next table because the voices were loud and the tables were close. One woman said, “I’ve taken my house from $200,000 to $350,000.” Being a real estate broker at the time, I wondered if she had updated the bathrooms or the kitchen perhaps, or if she were just riding the rising tide of prices.

Fortunately for me, her companion asked similar questions, so my curiosity was satisfied. She had done nothing to improve her property. She had a sort of self satisfied air, but the truth was, her ship (house) was among the masses the rising tide was lifting.

The price burst was caused by many things including the expectation that prices would continue to rise unabated off into a rosy, distant future. People had the idea that it was reasonable to pay more and more for houses and gave no thought to the basics.

At the same time this attitude prevailed, Fannie Mae and Freddie Mac pushed lenders to give loans to people who couldn’t pay them back. Lenders became very creative with their loan products. Localities passed laws intended to control growth. One unintended consequence of growth control laws was that the normal workings of supply and demand were corrupted.

If a builder couldn’t build economically in a community close to a large employment hub, he built in the next county, or the next, or the next. This was pretty much okay until gas prices began to climb yet again.

So, with these and other things going on, suddenly the housing market “fell out of bed,” foreclosures skyrocketed, and the future didn’t look so rosy. In fact, it looked downright scary.

Enter Temerity and Fear

As a result, many people are timid and fearful of buying.

This is unfortunate because this is a GRAND time to buy. Deals abound. I certainly don’t suggest that you buy a house you don’t want or need because it’s a good buy, BUT if you want, need, and can afford to buy a house in which to create your home, now is a good time. It’s also a good time to buy if you’d like to make ownership of rental property part of your net worth building strategy.

Well, you say to yourself, I got suckered into paying too much, and/or saw other people do it, when the market was in its heyday, how can I know I’m getting a good buy?

First of all, always reject any price that makes no sense. If a family earning an income equal to the median in the area cannot afford to buy a house priced at the median for the area, the market is out of balance and prices are too high. This is not apt to be a problem now, but it IS well worth remembering.

Secondly, do your homework. If area prices are reasonable (see prior paragraph) and the house you’re interested in is priced on the low side for comparable houses in the area (or can be negotiated to that sort of price), you’ve got a good buy.

People do best when they don’t behave like sheep. When they don’t’ buy when “everybody” is buying at prices that make no sense, they don’t land in the large group whose mortgages are “underwater.” Conversely, when there are few buyers and lots of would be sellers, people who DO buy can do very well for themselves. It often pays to ignore what the masses are doing and march to your own drummer.

Think about it. Rugged individualists settled our east coast, then moved west. Rugged individualists started, and prospered from, the industrial revolution. Today, rugged individualism may be more about thinking for yourself, doing your homework to gain knowledge, forming your own opinions, and having the courage to ACT on them.

Jack Hochman is a real estate investor specializing in Short Sales, Note Buying, and connecting buyers and sellers. Visit http://www.realnotebuyer.com to learn more about Jack and KE Consulting Co..

  1. #1 by sts on June 1, 2010 - 8:09 am

    Great info, thanks for useful article. I’m waiting for more

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