Not many people view their home purchase as pure investment. In fact, most buyers primarily look for a place to live that they can paint, redecorate and alter as they see fit. Investment, if even considered, is of secondary importance. The following is an interesting guest post from a California reader who just bought here in Reno despite the local housing downturn:
"Couldn’t post this a week ago (seems my work has some sort of web sense to keep us working), so I decided to mail it to you (at least someone would read it).
Doom and gloom. Are we not getting tired of the same stories?
First off I have recently transplanted from the Silicon Valley (in California). I have also sold a house in California, and recently bought a house in Reno. I am also working here. Yes I am one of ‘those’ people. Perhaps a bit late in the mass migration, but people are still coming. The growth potential in Reno is amazing, not to mention the area is just plain fantastic. I have been working here on a temporary basis for a few years, and have been watching the growth here. The offer to come here was too good to pass up, not to mention my kids finished high school.
BTW, I had four offers on my house the first week and sold it just over asking. This was in August of this year. It all is about pricing at what the market is at now. Of course I did not have to compete with 1000’s of new homes. I made a ton of money on the house as I lived in it for 17+ years. OK I am strange. But the schools were excellent, and there was little reason to move as the location was also very central.
The fact is the market is going through a correction, and people who are selling houses for the most part are not getting it. As far as I can tell they are not very motivated or are simply stuck with thinking they need a price. BTW, putting up a sign saying price reduced in this market is hilarious.
When moving here I saw what a new house gave me over what people were asking for older homes. I was a bit shocked. The fact is the builders are getting it, and seem to be more interested in selling and giving some excellent deals. Sure, I have to put in a backyard, but I have re landscaped a finished yard. Some of the landscaping needs a major overhaul in the houses I looked at, having a fresh palate to work with actually saves me a step of ripping out the old tired stuff, although a mature healthy tree or two is certainly a big plus.
I have to live somewhere, and buying a house vs. renting a house was an interesting trade-off. Moving is a pain, and the thought of moving twice in a year or when the market reaches bottom had a certain amount of cost associated with it. So I bought a house. Guess which kind? A new one! You might also start to notice rental rates increasing. Demand for rentals being spurred by buyers waiting on the sidelines? Interesting thought.
Should I have tried to wait for the mass foreclosures? The massive downturn? The additional 10% or 20% decrease? Wait till the bottom? Might of made economic sense, if the idea of moving wasn’t so painful. I am not the only one buying out there, so I believe I am not the only one thinking this way.
Talked with the title company people when I closed on my house and they even mentioned to me that sales are starting to pick up in the <300K range. So maybe people also are thinking the bottom is near.
There is a significant new house inventory out there. If you want to sell your old house make sure you look at the new ones near you! They are your competition as well.
So should builders stop building so people can sell their houses for a bit more? Perhaps. It is simple economics — decrease the supply and you will increase the price.
So what happened here? I call it rampant speculation in the days of easy money. People bought and rented houses thinking that they could make some money. Or bought over their heads thinking they could make more by buying as much house as was possible not what they could afford. I feel sorry for some of these people as they are going to lose. How much they lose is a matter of facing the reality. Can they afford it? It may be years.
Interest rates started to climb, and the speculators started to sell-off out of need or out of moving money to more lucrative ventures. The people who bought over their heads are now in panic mode.
The fact is Reno is a terrific area and is growing. You have to live somewhere, the prospect for the near term might not be rosy, but the long term sure looks great here. It probably will take years to recover what has and will be lost. But buying a home that you live in within your means is always a long term investment, a downturn is nothing to panic over.
Only problem I see is an infrastructure that has some serious issues. And may be the reason to start thinking about withholding some building permits. If this area is to see a 40% growth in the next 20 years, there needs to be some serious changes. That spaghetti bowl upgrade was a joke. Right? Who put 80 on top of a hotel/casino? Pyramid Highway will eventually have more lights; when will it stop being called a highway?
If this is panic, just wait if they ever eliminate the home mortgage deduction.
BTW excellent blog." – JustBought
Lindie
Just Bought makes overall some pretty good commentary. Hard not to notice that he/she bought new construction. This fits in exactly as RI and Gotlots have suggested, that the new home builders will put the big big hurt on the resale market. How is Joe Sixpack going to compete with Lennar and Horton and Pulte?
I hope Just Bought enjoys his home for many years. He/She seems to understand that he will have to live in it for several years to see price appreciation. It is interesting though, isn’t it, how folks move here from California and immediately call for limits on further building? If Just Bought thinks there is going to be any reduction in the number of building permits as a result of planning decisions, well, think again. The market will have its influence on builder decisions to build on, but it is more likely that Jimmy Hoffa will show up for lunch before building in Reno/Sparks is curtailed for planning and land use reasons.
renojedi
Excellent post. I too bought in Reno recently though I really had no choice. I sold my home in the North Valleys and moved to Washington DC for a 1 year job assignment. I was able to buy in the South part of town and am really happy with the purchase. This blog helped me a lot (great job, Diane) to see the market for what it was. And that definitely helped me position myself to make a fair offer on a new home. For it, I got a great house (which, by the way had a 500+ person waiting list and prices through the roof when I left) at a great price–so great, in fact, that I had to sign a confidentiality statement to ensure I didn’t offend my new neighbors. Suffice it to say, I saved about 17% off of the asking price.
So is it the bottom? Probably not. Could I save more if I rented and waited a year? Maybe. What is true is that, as the poster said, if people actually lived in a home rather than thinking of it as a piggy bank to finance everything from a Plasma TV to a cruise to their kids’ education, then things will get better. I personally know someone who refinanced their home three times over a two year period to pay for luxury items. Now if forced to move, they will be upside down pretty quick. These are the folks who are going to be hurt the most by the market correction. But if you’re just someone looking for a place to raise kids for a few years, I think the original poster is right that you shouldn’t be too afraid to buy. Just give what you think is a fair offer and let the chips fall where they may. Chances are, they’ll fall in your favor and if you live in Reno for a few years, the correction won’t hurt too mcuh. Just my two cents as someone who is really happy to live somewhere it was like pulling teeth to get into 12-18 month ago.
Reno Ignoramus
Renojedi:
I am curious about that confidentiality agreement you signed. What happens if you breach the agreement and one of your neighbors finds out you paid 17% less than he did? What is the penalty? Do you have to give back the 17%?
And in a year from today when a new buyer pays 17% less than you did, is that the subject of an agreement also?
And isn’t it all a bit silly, since the price paid for a house is a matter of public record and appears on county websites?