Critical Miami says: time to buy

About three years ago,* I advised everyone in Miami to sell their house, pocket the money, and wait a couple of years:

[F]ind a moment (and find it soon), to sell your house, put your stuff in storage and rent an apartment for a year (maybe two or three), then buy your house (or one similar) back, for a maybe $200,000 profit.

So, here we are, three years later. Neverminding for now that the housing market took the whole economy with it, let’s see what the smart money’s up to these days. I work up early this morning to cook up a graph for you people, with data from the trusty

Housing asking price median, 2005 - 2008, $425,000 - $260,000

I chopped the bottom half of the graph to make it more dramatic — the housing is in the tank. This graph actually understates the situation, because it’s showing asking prices, not sales prices. I should also say that during this period, housing inventory in the area went from 12,000 to 50,000.

Now, listen carefully: it’s time to go shopping. Remember the factors that led to the bubble? Idiotic interest-only mortgages, gross overbuilding, and what seemed like terrifying hurricane seasons as far as the eye could see. The picture today? (1) mortgage idiotics universally recognized and being dealt with to the tune of trillions of dollars from the federal government, (2) overbuilding spectacularly finished, and (3) relatively calm winds for the last two seasons. To boot, (4) an incoming president that everyone seems to think Can Fix Things.

Respectively, these factors mean: (1) lots of money for people to borrow to buy homes being injected straight into the economy’s mainline, not the least of which is near-zero interest rates, (2) there are more unocupied homes now then they will be for probably another decade, (3) people will begin moving to Miami in droves again, and (4) the economy is ultimately about mood and expectations, and both are in the process of getting a major boost.

So, what’s the smart money doing? Maybe not buying a house or condo today, but it’s starting to look around. It’s checking out the listings, and getting a feel for the market, and planning on buying something pretty damn soon. I’d say sometime in the next six months. I know the right edge of the graph still looks like a plunge, but the thing is that while the economic recovery will be slow and steady, the housing market will recover probably first with a sudden upward jerk in prices. And if you wait for that first jerk up, you’re going to be one of the droves of people entering the market, and you won’t get the really good deals. The time for those is now.

* Actually, check out this post from June 2005.

10 thoughts on “Critical Miami says: time to buy

  1. Whoa, I forogt all about those, thanks for pointing that out.

    Extremely frequently on CM it was me arguing some point and everyone arguing against me. I guess I’m being vindicated, point by point.

    Also, I was telling someone about that 2-year old post today, and the response was, “yeah, but didn’t everybody see that coming?” And so I guess no, not everybody did.

  2. yeah. I didn’t say, but by “pretty damn soon” i was thinking on the order of about 6 months.

    I think the house/condo thing is strictly a personal choice. Houses have obvious advantages, but the better deals will be on the condos.

  3. (1) is wrong. You have not been shopping for a mortgage recently I presume. Banks are extremely skittish right now.

  4. I think looking to buy a home based on external conditions (read: market) is what got us in this mess in the first place. We might be dealing with a different state of market environment but the only conditions that should matter are internal, as in personal finances, etc, and with the current state of the economy there is no money to go around (as Alex said).

    If the future wasn’t so uncertain (although things ARE looking up), it’d be a good time (for me at least).

    btw, whatever happen to John and Miamista?

  5. Alex~ No I haven’t. Presumably they’re pushing all this money on banks though, right, so you’d think sometime during the next year the system’s going to loosen up, and while they may be careful about who they lend money to, the interest rates are going to be killer.

    R.~ Well, I think you balance the two. Certainly I’m not advocating real-estate speculation. But anybody on the fence I think ought to think seriously about jumping in.

    The problem with waiting because of the uncertain future is that by the time it’s a little clearer the best deals will be gone.

    No clue about John. I’m wondering what happened to Alex of Miami and Beyond (and formerly Stuck on the Palmetto). He went on hiatus for the election, but now the blog is gone and there’s no sign of him. Unless the Alex commenting above is the same Alex?

  6. Yes, same Alex. (Closed the blog for a couple reasons, a bit complicated. Ironically, those circumstances changed at the end of the year.)

    It’s interesting what’s happening right now (I do have a friend who is in charge of lending for the local branches of a national bank). They have money but the standards of lending have tightened up significantly. (He says banks don’t lose money when they sit on it). Namely 20% deposits, yearly payments can’t be no more than 1/3 income, etc. Another place where you can see this tightening is car leases. Dealers want to move metal, lenders are wary.

    Yes, it’ll loosen up eventually and the interest rates are fantastic. But right now you have to have money to play.

  7. Ahh, thanks for the clarification. Great to have you around.

    Again, I’m talking about a 6-month time window. The first wave of government bailout will be to stop the foreclosures. The second wave of course will include help to those who want to buy the homes that have already been foreclosed.

    Banks don’t loose money when they sit on it, but of course they make money by lending it. Once they get their bearings, they’re going to be eager to lend again. Not the interest-only loans we had before, but not 20% down, either. The moment is coming.

    BTW, check this out — an 825 square foot condo in one of the suave towers in Brickell for $138,000. There are deals like this around, and they stay around until the last of the new condo high-rises is finished. At that point the good deals will start to get snatched up.

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