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A Brilliant marketing executive came up with the idea of promoting the “Starter Home” (not to be confused with the “starter wife”). Buy a small home or condo… stay in it for two to four years, use the increase in value, “equity,” and buy a bigger a house.

Problem is an assumption was made: Maryland home prices will go up! And why not? Real estate went like 60 years without 1 annual drop nationwide. It was a no brainer. But when people don’t think, bad things happen.

If prices don’t go up, homebuyers are stuck. I know a ton of friends that are underwater and can’t upgrade. Not only do you need prices to go up enough to pay for a larger down payment, you have to overcome those damn Realtor fees (sure you could sell it yourself, but read my “Save $20,000″ FSBO post).

So prices have come down. Now what? Many reply “But prices are down, so they can only go up!” Yeah right. Not to scare you, but it can always go down.” I’m not talking nuclear bomb .000001% chance, I’m talking real human chance.

So, what is the answer? I really don’t know. I just wanted to people to be aware. Here are some possible solutions.

• For those that are now considering buying (should you hurry for the tax credit?):
  

1. RENT (Watch my 2007 Don’t Buy Video). Yeah, just lie to your friends that say “so do you own this place?” It is none of their business. I’ve always thought that asking that is kinda like asking “what’s your salary?” Renting is still much cheaper than buying (usually). Save money and maybe buy a bigger home you can stay in for 7-10 years.
2. Buy now, but truly understand this is real and risky. (And those that say “I’ll just rent if I need to move out,” that doesn’t work so well).
3. S T R E T C H . As painful as it may be, it might be less risky to skip the starter home and find a place you can stay in for a longer period. Sure I make less money (assuming you buy both the starter house and the next house with me) but you get to skip a set of Realtor Fees and avoid the “if it goes down we can’t move” risk. See my older post Buy Bigger! You’re Only Borrowing It Until You Sell It!

Disclosure (or is it a “disclaimer,” sorry bad insider Realtor joke). Don’t be silly and overextend into the danger zone. However, 95% of my clients consider themselves to be “Ultra Conservative” with money. Yet versus what the national average, or what a bank says they can buy, they aren’t. For example, the bank might approve $800,000 for a 30 year fixed, but they want to remain conservative and buy a $600k home. I’m just playing devil’s advocate. That buying a shorter term home might be more risky and more expensive in the long run.

For those that already bought a few years ago and feel STUCK.

1. Take a loss. This might not be possible for some, and sure it is painful, but don’t forget you are likely buying “UP.” So sure you are selling your place for a $30,000 loss, but hopefully you are buying a place that is $60k-$80k less than a few years ago. It all washes out.
2. RENT AND RENT. Seems obvious, but when I mention it to the “stuck,” it is like a light goes off (or is it “on”). Can’t take that loss, then rent out your place, and move into (rent) a bigger place. The difference per month is just what it costs to get a bigger place.
3. RENT OUT and BUY. I call this the DOUBLE DOWN. I really don’t like this option. WAAAAYYY too risky in my opinion (but I’m not buying the house, you are). This is where a buyer is underwater on their house, and they don’t want to sell it. They instead want to buy ANOTHER house, thus owning two houses. This doubles, or triples, their real estate exposure. Because “things can’t get any lower than this!” Again I warn people about taking this route.
   

So, still want to buy that 1 bedroom condo or townhouse? Great! Not a problem. At least you are more informed and not following any brainwashing or peer pressure. And sure I’ll help you. I love working with informed buyers. Nope, never too busy for you (video).

For those that have been asking for an update on my AU Law School studies. Things are going great. Moved to the day program, taking Cyberlaw, Trademark and a few others.

Here is another video from my recent Africa trip. Sandboarding video while talking about the “POPCORN” Agent (make sure you subscribe so you don’t miss that post)

Click here to view the embedded video.

Written by Frank- Broker FranklyRealty.com

Please report typos. Please get your NVAR Realtor to vote today (before 10/09) at ChooseFrank.org. Cicada photo by marlb0r0 man, Devil by  gruntzooki, Stuck by NeilsPhotography

Everywhere you turn (even CNN.com) you read about the $8,000 1st time homebuyer tax credit and how you need to “Buy Now” (anybody remember that NAR ad from 2006?). Gotta hurry up before the Dec 1st Expiration!

(Sidenote: that expiration means you need to CLOSE by then. If you are looking for a short sale gamble, and you want the credit, you better get it under contract NOW. And everyone else, don’t be an idiot and schedule your closing on the 1st. At least close a week early. There will be a backlog, and hiccups, and you might miss your tax credit.)

So Warren Buffet says whenever you see a herd running in one direction, you are supposed to walk the other way.

Well there IS a stampede in Virginia trying to buy homes in time for the Obama tax credit. People LOVE tax credits. Kinda like people love to “SAVE” by going FSBO, when it will likely actually NET them less.

Has anybody stopped to wonder whether this mad dash might be temporarily INFLATING prices beyond the credit that it offers? And the day after the credit expires, might there be stall? Winters are bad enough, maybe the worst winter recorded?

Buyers:

If you are buying under the $100,000 price point, sure that $8k credit will likely be better to take now.

If you are buying from $400k-$700k, you have to ask yourself, “Once the flood of buyers evaporates, won’t that send prices down?” Maybe.

Am I saying “DO NOT BUY?” No, but I am also saying, don’t be silly and getting into some crazy bidding war or overpay for a place to get in under the wire.

Kinda like the Cash For Clunkers campaign. How many “Deals” do you think the dealers were really giving in that last week when their phones were ringing off the hook? They probably jacked prices up. And sometimes that $5,000 credit was in place of a $3,000 valued car. So the net saving was only $2,000! And on a $20,000 car, I bet a month after the tax credit, (after inventory catches up) you can get that $20k car for well under $18k.

Sellers:

Don’t get too greedy! You also want to sell into this flurry. Ask for too much and watch the dead Winter-time come (unless Congress extends it, which they might).

Normally I am not an advocate of Market Timing. But for those that like to try and play the game, I just wanted to give you some food for thought.

Also please attach comments with links to any other blogs that might question the value of rushing in to get the tax credit (I didn’t see any, they were all “buy now”).

And stay tuned for a flurry of new posts. I had an 18 hour trip to Africa (see Wheel Estate Cam Below) to write a ton.

Written by Frank Borges LL0SA Broker FranklyRealty.com

New: Inman 2009 Innovator of the Year (more on this later)

Random Wheel Estate Cam video from Africa:

Please report all typos!
Photo Credits:Tax photo by Aimeesblog, Clunker by ThreadedThoughts, Warren by Tedizen

No other indicators from NAR or the government have been as accurate as the proof that I have. I found a 100% correlation!

When My MOM SELLS, THE MARKET SKYROCKETS shortly thereafter!

The chart to the left is factual. Actual points when my Mom has sold her property.

The last arrow is from a recent listing which is now under contract. (see listing, check out the photos and collages).

So there you have it. No more need to think. I have always been against the NAR campaign that says “Buy Now,” but now I can show proof that NOW is the time to buy! That market is going UP UP UP!

Thanks Mom, for taking one for the team and helping us all out by single handedly turning markets around!

For my previous prediction on the EXACT best day to buy, read my Market Timing post.

Not a subscriber? Add your email to get spam-free blog posts sent to your inbox. Upcoming posts: My GrandaMa Thinks I’m Broke. Also don’t forget to comment. Bloggers like comments.

- Written by Frank Borges LL0SA- Broker FranklyRealty.com

p.s. Please report typos

Out of the 47 zip codes, they said the #1 fastest growing zip code was 20170, Herndon at +14.4%.

How can this be? I recently wrote about Herndon and the Foreclosure mess going on over there with as many as 48% of homes on the MLS from $300k to $400k being in some stage of foreclosure (See my SOL foreclosure post).

So I set out to prove the data wrong (I’ll admit to my bias). I suspicious of the Post disclaimer saying “It excludes some types of marketplace transactions, particularly those that are not at market price.”

Aha! Gotcha! My translation: Take out the foreclosure and short sale problem in Herndon and home prices went up!

Oh this is gonna be good!

Washington Post’s Herndon data:
Jan-June 2006
356 Homes $411,000
Jan-June 2007
123 Homes $470,000
$59,000 increase or +14.4%

Frankly Herndon Data (from MRIS)
Jan-June 2006 291 Homes $475,000 Jan-June 2007 199 Homes $485,000
$10,000 increase or +2.1%

I didn’t see 14.4%, but it still went up!?

So then I ran the numbers from July 1 2007 to present.

Frankly Herndon Current Data (from MRIS)
July-Nov 25 2007
134 Homes $421,000
(vs $485k in 1st part of year)
$66,000 DECREASE or 13.1%
(this was based on 6 months later, so one could argue that annualized that is 26.2%)

Up 14%? Down 13%? Down 26.2%? Flip Flop!

How can you compare 300 homes in a zip code to a completely different 150 homes a year later? These are NOT the same homes. Add in a new community of 30 homes (which are always much higher than resale homes) and it can make a zipcode look like it was skyrocketing. I even think new homes actually might be the reason why NAR has never shown a decrease in home sale prices (with the exception of this past year).

And even if you DID believe the data, what then? It is still useless! So, if Herndon is one of the few zip codes that are UP (as well as 22046, 22041,22309), what?, you should buy there? Or are they implying that you should buy in the zip code that they say is down 10-19% (22102, 22124, 22031, 22030, 20124)? Since they are a better “deal?”

You also have data extremists, such as bubble prognosticators. To the right is a famous chart from the S&P Case-Shiller index. They are claiming that prices will drop 50%. Is your $500,000 condo going to be worth $250,000 in a couple of years?

Oh, by the way, Robert Shiller is getting rich on this doomsday prognosis.

And the Realtor Assoc comeback to this is weak:

Lawrence Yun, NAR’s chief economist says, “In some ways we’re tracking different things. We use MLS data, so our figures are as timely as possible and are more representative of markets. Shiller uses county records and mortgage data from the secondary market. These sources lag further than ours and they capture a disproportionate percentage of higher-priced homes.”

Let me break that down really quick. NAR’s main excuse is that the data is delayed and is more weighted toward higher priced homes? Um, that was a horrible comeback.

1. Ok, it is 3,6, 9 months behind, so just wait, or move the data over.
2. Are you saying you agree with them in regards to higher priced home? So with the average home in the US being somewhere around $250,000, anything “high priced” like $400k will drop like they say?

NAR better come up with a better comeback to that, no wonder people believe it.

Bottom line is, data is too easy to manipulate.

Ok, so what should buyers do (if they, not their Realtor, decide to buy)?

1) Don’t try to time the market Attn. Market Timers! The EXACT Best Day to Buy!

2) If you are ready to buy, use the Round Robin Method “Round Robin” Buying System. Unearthing The Desperate Seller.

And the only data to look at is data pulled by your agent showing you extremely local data (as in down to the neighborhood) while making adjustme
nts PER house. Does it have a garage? Compensate for that. Larger Sq Footage? Etc. Then and only then can you see any real trends.

- Written by Frank Borges LL0SA- Broker FranklyRealty.com (please report typos!)

Like what you read? Thanks. Make sure you subscribe (upper corner of Blog.FranklyRealty.com) so you can get my next post on Days on the Market correlation to prices in Northern Virginia. Also forward this post to others or share this post using your Facebook account.

Update: Look at the Nova Housing Bubble and their example of Herndon homes selling for 41% off their previous purchase price.

So you no longer believe the “Buy Now!” campaign from the National Association of Realtors. Especially since The New York Times quotes the former Chief Economist David Lereah as acknowledging he had gotten it wrong. Also you no longer hear the office water cooler chat: “Historically with a 7% annual appreciation, you can’t go wrong” or “stop throwing money out the window” (see my “Don’t Buy, Ask Why” video/blog).

The market has been dropping over the last two years. Poorly, I mean “badly” (especially condos). In the newish building where I live (Clarendon 1021, an Arlington Condo in Virginia), one particular unit went from $585,000 starting price, up to $670,000, and then down to $530,000 in a pre-foreclosure last month. A lugubrious $140,000 swing! So it would make sense that people would ask me “is this the bottom, should I buy now?” and today’s “So there are some real deals out there?”

I can understand the fear that a prospective home buyer has in this marketplace. Nobody wants to be made the fool that bought at the top. Even knowing that they got the place for $50k or $100k better than a topper (a made up word for somebody that bought at the top), isn’t good enough. They want the exact inflection point. They want to be the braggart of the officeplace in a year or two when they are “rich.”

I call these people Market Timers.

Enough already? When EXACTLY is the right time to buy…?

The day, as in the exact day is… the day you stop caring about the bottom of the market and you decide you are ready to live in a place for 5-10+ years and enjoy life.

I’m serious. It might sound like a convenient way for yet another Realtor to make “now” always the best time to buy, but show me one other blog that will also tell you that the economics of buying are still WAY off, and might be for many years to come. The economics of renting are still far far better than buying, even after the tax advantages.

I’ve always maintained that your house should be #1 about enjoying life and all the “warm and fuzzies” that come with home ownership, and maybe #4 can be about investment. Those that try to make them both #1 will have an analysis paralysis situation.

Nobody knows what the market will do (see Stockbrokers Can’t Predict Stocks, Realtors Can’t Either!), so quit trying to be Nostradamus (or expecting me to be one), and go out there (when YOU are ready) and try and get the best price possible and enjoy!

My next article will be about Pre-foreclosures, short sales and bank owned properties. If you like what you are hearing, make sure you sign up for this blog via Feedblitz on the right side.

- Written by Frank Borges LL0SA- Broker FranklyRealty.com

p.s. Typos, please report them to me.

p.s.s. For those that really wanted some “timing,” all I can say is December is when there are the fewest # of buyers, and you might get another 1-3% off. Come Jan 2nd there is a FLOOD** of new buyers that have put the holiday stresses behind them, and are eager to buy. The problem with waiting until Dec is the inventory and your options are the lowest.

Correction: A commenter called me out on the use of “FLOOD”, that was probably too strong of a word. I ran the numbers and actually January had 40% more under contracts than November and only 20% more than December for 22201. So maybe I should have said a “smidgen more.” See comments for more details.