Posted by: Timothy Ellis (The Tim)

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

59 responses to “Buy Low, Sell High. Is it possible to buy low today?”

  1. Basho

    A good gut check for me is the Redfin e-mails that list the properties that sold that fit my search parameters. Rarely do I see a sale that makes me envious of the buyer for getting such a good deal.

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  2. Joe Manausa, MBA

    Tim, I think of “buy low and sell high” as an understanding of market cycles. Right now, we are in a time where many markets are seeing home values well below what replacement cost would be. Obviously, this means nothing for current market values, but if an investor is in a growing market, it is a sign that buying at market today will be lower than selling at market in the future.

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  3. TheHulk

    Personally, I would be pretty happy with Bought at X, Sold at X keeping in touch with long term inflation (without too much trouble).

    Sadly, pricing is still very bubblicious. It seems to me like too many people are stuck neck deep either thru HELOCs or because they purchased in the bubble years. Those who aren’t in that boat seem to be stuck in the bubble years, although I have to admit it’s nothing like 2007. Even today it amazes me as to how expensive housing can be and makes me wonder how prices ever manged to reach those 2007 peaks.

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  4. Bob Smith , TLA

    By Joe Manausa, MBA @ 3:

    Tim, I think of “buy low and sell high” as an understanding of market cycles. Right now, we are in a time where many markets are seeing home values well below what replacement cost would be. Obviously, this means nothing for current market values, but if an investor is in a growing market, it is a sign that buying at market today will be lower than selling at market in the future.

    I guess I’m not smart enough to understand what you just said.

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  5. Alan

    RE: Joe Manausa, MBA @ 3

    Or it means that construction costs will have to drop. Profits in industries that supply housing construction (materials and labor) will be squeezed.

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  6. WestSeattleDave

    RE: The Tim @ 2 – 5 acres with a creek and a pond could be another name for “wetland”. Which means that the property could be worth half that $600K (or less) due to the many restrictions that accompany wetlands.

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  7. No Name Guy

    RE: WestSeattleDave @ 7

    Check the link he put in that post – in 2008, it shows it went at 1,250,000.

    A big Homer Simpson D’Oh!

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  8. softwarengineer

    2.67% of American Households make $200K or More

    Having said that, that leaves the other 97% in a Midle Class conundrum for even qualifying for buying middle of the road $400K homes in Seattle.

    Albeit just barely qualifying for a home mortgage even with an extra 20-30% wiggle room leaves very little for cash savings, dental, car costs, food, gas, home upkeep, furnishings, hired slaves, vacations, clothes, eating out, etc, etc….

    One solution is lots of Top Ramen and stuff from the Goodwill….and a home mortgage payment too….LOL

    A caveat, have you bubblebrains visited a 2nd hand department store lately? The word is out evidently, they get WAY TOO crowded with repression bargain hunters now and PRICES there are way UP….hades, Big Lots will beat a Lion’s Share of their unit prices and the items are new…LOL

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  9. krs

    I’ve come across a few properties recently that were bought at foreclosure auctions and are now listed for significantly less than the auction price. I’m sure those folks thought they were buying low.

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  10. Pegasus

    RE: krs @ 11 – That is probably the bid from the bank that owns the mortage that is inflating the value to their loan amount or close to it. They may not be ready to write off their investment at 40-50 percent off yet for accounting reasons. It becomes a REO.

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  11. Basho

    “Tim, I think of “buy low and sell high” as an understanding of market cycles. Right now, we are in a time where many markets are seeing home values well below what replacement cost would be. Obviously, this means nothing for current market values, but if an investor is in a growing market, it is a sign that buying at market today will be lower than selling at market in the future.”

    In Tuscon, AZ you can buy a house for less than construction cost, not in Seattle or Bellevue.

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  12. Blurtman

    RE: softwarengineer @ 10 – :>)So falling home prices are a good thing. It will free up a lot more money to be spent elsewhere on other goods and services by the folks that take out a mortgage.

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  13. calvis

    RE: Joe Manausa, MBA @ 3

    Hi Joe, just cuious on where you got your MBA from? I am always intrique when people put MBA in their titles. (I have an MBA as well, but would not dare use it as a title)

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  14. Bob Smith , TLA

    By Joe Manausa, MBA @ 3:

    Tim, I think of “buy low and sell high” as an understanding of market cycles. Right now, we are in a time where many markets are seeing home values well below what replacement cost would be. Obviously, this means nothing for current market values, but if an investor is in a growing market, it is a sign that buying at market today will be lower than selling at market in the future.

    Do you specifically mean new construction is selling for less than cost? Do you see Seattle as being one of those markets? Finally, do you see Seattle as a growing market right now?

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  15. hoary

    By calvis @ 15:

    RE: Joe Manausa, MBA @ 3

    Hi Joe, just cuious on where you got your MBA from? I am always intrique when people put MBA in their titles. (I have an MBA as well, but would not dare use it as a title)

    I hear this new Google thing’a’majig works pretty well for searching people and things ;)
    http://www.linkedin.com/in/tallahasseerealestate

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  16. krs

    RE: Pegasus @ 12

    No, these are properties that were bought by individuals at foreclosure auctions. They turned around and put the properties back on the market at significantly more than they paid. When the property didn’t sell, they kept lowering the price until it was lower than they paid at auction.

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  17. ARDELL

    Someone buying today, overall, is still not better off than if they had bought in 2004 or earlier, and didn’t do a refinance that increased their mortgage amount.

    I wouldn’t call that “low” relatively speaking, given many other markets are at 2001 and 2002 levels.

    I see the market coming down another 8% or so from here by year end, and not having any kind of significant “recovery” until 2018 or so.

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  18. One Eyed Man

    RE: krs @ 18

    From the Glossary of real estate terms:

    “Flipper” – A now generic term used to refer to a marine mammal common to Florida that lives underwater and breaths through a hole in the top of its head. Sometimes makes an annoying, high pitched sound reminiscent of a land mammal whose genitalia is being squeezed tightly by the incredible weight of interest carrying costs.

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  19. ARDELL

    RE: The Tim @ 20

    While that may be true, people need to ask themselves why that is before deciding to buy where prices have dropped more. I generally think best school you can provide for your children is top on the list of what someone “should” want if they are buying a house in preparation for starting a family. Crime statistics and # of sexual offenders nearby is an important stat. If you look at the MOST depressed areas in relation to those and other negative factors, that are not about “the house” itself, the bargain may not really be a bargain at all.

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  20. Ross

    You don’t have to be right about the market, you just need to be right about a single home. You also don’t have to be smart, if you’re lucky. So of course, it *possible* to buy low and sell high. Possible does not imply easy.

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  21. joe dirt

    By Basho @ 1:

    Rarely do I see a sale that makes me envious of the buyer for getting such a good deal.

    Browsing through all sold properties in some of the good neighborhoods, I’ve seen many, I feel were good buys. This was especially true 2009 and 2010, but less so recently. Example:

    http://www.redfin.com/WA/Kirkland/6525-102nd-Ave-NE-98033/home/459665

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  22. ARDELL

    RE: The Tim @ 24

    It is generally true if you do not consider price as being the only consideration. Always exceptions, of course, but not many.

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  23. JJ

    ardell thinks there is more room to fall, while tim thinks that it is possible a good deal can be found…Maybe the bottom is in?

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  24. NewHomeOwnerInFremont

    RE: JJ @ 27 – I was thinking the same thing. She is the ultimate contrarian indicator. :)

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  25. Calgary Real Estate

    It sounds as though the Puget Sound area is going through the same dilemma that we in Calgary are going through. Should you buy or not? Let’s hope that this is a low and that market and the economy is finally going to rebound. I am not saying that I want prices to continually increase, I just don’t want them to free fall any further then they already have.

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  26. Basho

    “Browsing through all sold properties in some of the good neighborhoods, I’ve seen many, I feel were good buys. This was especially true 2009 and 2010, but less so recently. Example:
    http://www.redfin.com/WA/Kirkland/6525-102nd-Ave-NE-98033/home/459665

    While that may be a good buy, it is not the right fit for me. I prefer an earlier retirement to a nice view.

    Other things to consider. Flat roof, but I don’t see a rooftop deck? Small lot, limited gardening space. I’m also not a fan of stucco siding. With stucco siding you run a higher risk of having an expensive siding failure if the design or worksmanship is subpar relative to a material like cedar. How noisy is the location? Is there potential for the view to be blocked in the future?

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  27. Blurtman

    “One of the simplest reasons that it was obviously not a good time to buy during the housing bubble was that it was impossible to “buy low.” Pretty much everyone who bought a home between about 2005 and 2008 bought high. Some people bought higher than others, but virtually nobody was able to buy low.”

    This sounds like Homer Simpson logic to me. Doh! Or, the rather useless in hindsight statement of what is now obvious.

    “Low” is relative, not absolute. You could have bought in 2005, sold in 2007 and made money on the sale. Then one could say you bought “low.” But perhaps in 2005 you paid a higher price than the average comp, and bought “high.” But as your 2005 “high” was a 2007 “low” you made money. Hi Lo.

    It would be tremendoulsy more meaningful to use fundamental analysis at the time to make a forward looking statement about prices. For example, one might have said in 2004 home price to income ratios were way screwy, and therefore that it was not a good time to buy. That would have been meaningul. But the above statement is close to meaningless pop analysis.

    Flash: Betting on the Steelers to win the last Super Bowl was a bad idea. Well, at the time, it was a good idea. But now that we know the result of the game, it was a bad idea. Obvious, and next to meaningless.

    Tim, drink more coffee.

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  28. David

    I’ve been bearish on housing since I was first in a position to buy in 2004-5. After a lifetime of renting, and the last 10 years living on the east coast, my wife and I just bought a solid, well maintained, one-owner late 80′s custom built home in Shoreline on 1/3 acre for $130 a sqft. We’re somewhat worried prices will come down another 10% in the near term, especially so because we put 35% skin in the game, but we want a house that we can make our own long-term, and we’re so freakin’ tired of renting.

    So, I’m calling “almost” bottom.. Will be interesting to see what happens.. hope people around here can stay employed, and that the NW has solid, sustainable growth over these next couple of decades. Seems to me like a prime place for it.

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  29. David Losh

    There were properties bought in 2007 at low prices. Many sellers were happy to get what they thought was an outrageous amount of money for a home, or property.
    I wish I hadn’t panicked in 2007. Prices really haven’t come down as far as I think they will, or should have. The government did a lot to prop up prices.

    So, yes some buyers did well. Many sellers did better. The market is however the market. It’s a snap shot in time. It all depends on your game plan, and if the property you buy will give you a return.

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  30. Urban Artist

    I agree with Ardell that a cheap house may be a bargain but if the schools are bad and crime stats are bad then not such a hot deal. I have two kids so schools are the main factor to were we look for a house. I also am totally with David. I’m so sick of renting,which I have done since I left home. We plan on staying in the house we buy for a long time. But when we buy and if it drops another 5% or so I really wont care that much just to never have to deal with another crazy landlord it will be worth it.

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  31. joe dirt

    RE: Basho @ 30

    Basho, that one has street noise, but unblockable view. Quality is high:

    http://www.baylisarchitects.com/lakeviewdrive.html

    Anyway, its just an example, and I expect people picking up these distress sales will be happy in the long term. I certainly hope Ardell is wrong about not recovering until 2018, because if that is the case we could all be in trouble.

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  32. Rob

    Don’t see of many posts from people who have gotten off the sidelines, so I’ll chime in with our story. Our offer was accepted on a great first home last weekend on a non-distressed move-in ready rambler that fit all our criteria and more. We feel like we got a great deal, the house is well within our price range, and enjoyed having the leverage when shopping the mortgage market. Now we’re on track for a closing in less than 30 days. Do we think we timed the market? Maybe, maybe not. But the timing was right for us and is a place we could stay in for a while.

    Quick tip learned by accident. If putting less than 20% down at closing, consider paying PMI as a lump sum at closing, and shopping for a low PMI rate too. It would have taken us 80 months to get to that equity, but by paying lump sum, the breakeven will be 25 payments.

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  33. Macro Investor

    RE: NewHomeOwnerInFremont @ 28

    Well, the altos chart on Tim’s home page would argue with you. It just started the next leg down. Where it stops nobody knows.

    BTW, for those of you getting impatient and buying now — good luck. However, if uncle Sam ever stops holding down interest rates (and basically being the entire secondary market for loans) we are in for a whopper of a rate increase and second housing crash. Everyone needs to factor that possibility into their decision. My gut tells me we are still at bubble prices based on that.

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  34. Jonness

    By ARDELL @ 19:

    Someone buying today, overall, is still not better off than if they had bought in 2004 or earlier, and didn’t do a refinance that increased their mortgage amount.

    I wouldn’t call that “low” relatively speaking, given many other markets are at 2001 and 2002 levels.

    I couldn’t agree more. And nearest I can tell, Seattle prices are not turning positive in March despite a pickup in MOM sales. I’ve been expecting a tiny bit of price appreciation in April, but I’m rapidly losing confidence it will occur. If we end up trending down through the entire Spring, I think even pfffft will turn bearish.

    Personally, I wish this thing would turn around. After 5-years of searching I’ve found the perfect house. Unfortunately, I’ve worked too darned hard for the money to allow it to float away in a cloud of radioactive bubble-pop dust.

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  35. Jonness

    By Blurtman @ 31:

    Flash: Betting on the Steelers to win the last Super Bowl was a bad idea. Well, at the time, it was a good idea. But now that we know the result of the game, it was a bad idea. Obvious, and next to meaningless.

    IMO, his post carries deeper meaning. If it’s obvious to all that buying at 2005 prices was a bad idea, and we are currently about at 2005 prices, his statement takes on a certain amount of importance to anybody considering buying now.

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  36. David Losh

    RE: Jonness @ 38

    This is a house that is a Lindal built home that can be finished better, in a neighborhood that will improve, close to good schools.

    http://www.redfin.com/WA/Seattle/3008-NE-115th-St-98125/home/111564

    We’ve talked about the property before, but at $166 per sq ft it seems like a good investment both long, and short term.

    In today’s market place I would make up, will be making up, lost value by amortizing our loan quicker, within 10 years, and probably within 7 years.

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  37. Jonness

    By Urban Artist @ 34:

    But when we buy and if it drops another 5% or so I really wont care that much just to never have to deal with another crazy landlord it will be worth it.

    5% is nothing to worry about, and all of us fence sitters would probably buy if we believed that’s all prices will eventually fall. Unfortunately, most fence sitters are pricing in a lot more potential downside risk than 5%.

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  38. Lo Ball Jones

    My own prediction is that prices will have stabilized at the point that people stop caring about real estate. So, sites like patrick.net will become abandoned. No one will think of a home as an “investment”. It will just be a place to live in. It will be easy to afford and own, more like a car than a lifetime achievement. By then everyone who bought at the top will simply default. They will be the luckiest ones because they will have effectively “rented” the home for a few years and then be practically gifted with it at a very low price. Everyone else will end up about the same, paying of their house at a car price in five years. That means they can either retire at 30 or keep working an amass a fortune by not having to pay for property. Rents will go back to the 1940s style of flophouse rates….maybe $50 a month. You can miss like 3 months of rent and all that will happen is the landlady will come around in her housecoat with a rolling pin and demand payment and then you will say “yeah, missus….I get ya next Friday….”.

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  39. Jonness

    RE: David Losh @ 40 – That one is interesting. The replacement cost is quite high, which helps to mitigate risk.

    It’s interesting you talk about rapidly paying down the loan. I’ve been toying with a similar strategy to help offset future price declines. I think I would still take out a 30-year loan though and allow myself to get hit with the higher rate. I like having a little protection against potential black swans. I’d probably pay it off at 2x the rate or so.

    Out of curiosity, what loan term would you use if you planned on paying it off in 10 years?

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  40. Dell

    Prices may be inching up already. My agent tells that there will be a lot of buyers coming out of the woods by summer…

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  41. Herman

    By Dell @ 44:

    Prices may be inching up already. My agent tells that there will be a lot of buyers coming out of the woods by summer…

    My agent told me that I’d better buy right away because she’d like the money to take a trip to Hawaii before summer starts.

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  42. ARDELL

    RE: joe dirt @ 35

    It depends on how you define “recovering”. We may not ever get back to peak pricing, but if we do, I doubt it will be before 2018. You may define “recovery” differently than I do. In terms of what I mean by “not ever”, I’ll be 57 in June, so “not ever” is likely shorter for me than for you.

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  43. EconE

    RE: Lo Ball Jones @ 42

    $50/month would be sweet. It’s at least $100/mo for anything decent here in Bangkok.

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  44. ray pepper

    It is VERY VERY possible to buy low now! Then flip within 30 days. I see it over and over.

    Its also VERY possible to lose your butt and watch it go right back to Trustee sale!

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  45. ARDELL

    RE: Dell @ 44

    I would expect sellers to come out in at least equal if not more numbers at the same time. So the balance of supply and demand shouldn’t really change, not for the worse anyway.

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  46. BillE

    By Dell @ 44:

    Prices may be inching up already. My agent tells that there will be a lot of buyers coming out of the woods by summer…

    I heard the same thing from agents in 2009 and 2010. It must be true this time.

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  47. BillE

    By ARDELL @ 19:

    I see the market coming down another 8% or so from here by year end, and not having any kind of significant “recovery” until 2018 or so.

    You didn’t call a bottom already? RE professionals are so funny.

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  48. Andrew

    http://mysite.verizon.net/vzeqrguz/housingbubble/ – seems still above inflation…

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  49. Beerme

    By Jonness @ 41:

    By Urban Artist @ 34:
    But when we buy and if it drops another 5% or so I really wont care that much just to never have to deal with another crazy landlord it will be worth it.

    5% is nothing to worry about, and all of us fence sitters would probably buy if we believed that’s all prices will eventually fall. Unfortunately, most fence sitters are pricing in a lot more potential downside risk than 5%.

    RE: Jonness @ 41 -Indeed. Or that it could take five years of 1% losses. As long as housing keeps going down and I can rent something equivalent for less, I’ll stay a dumb renter and nag my landlord everytime I clog up the sink with bacon grease. (not really, I love my landlord) Seriously though, I’m very happy it wasn’t me on the roof in the rain looking for that leak two weeks ago! Brrrr.

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  50. Kary L. Krismer

    By BillE @ 51:

    By ARDELL @ 19:
    I see the market coming down another 8% or so from here by year end, and not having any kind of significant “recovery” until 2018 or so.

    You didn’t call a bottom already? RE professionals are so funny.

    Here’s a post where I go over the history of Ardell’s predictions. I’m not sure what position she was taking at the time I made that post.

    http://seattlebubble.com/blog/2010/10/26/case-shiller-seattles-home-price-double-dip-begins/comment-page-1/#comment-113959

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  51. ray pepper

    RE: Kary L. Krismer @ 54

    I’m getting the impression you and Ardell are NOT FB friends………

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  52. David Losh

    RE: Jonness @ 43

    You always get a 30 year amortization to keep the payments low. It’s a choice you have each month. Then I would start with $100 per month to principal, or what you are comfortable with. You’re also going to want a household account for expenses, and get that to be a month, or two of mortgage payments.

    You have to buy what you can easily afford. Yes, I think people will be trading equity in homes as prices continue to decline.

    Let’s say you pay off the example home at $500K in five years. In that time a better home home may be at the same price. You would be paying cash for a better home.

    In terms of spot lot builders; I have never counted them out of the equation. Building mega houses in neighborhoods that will never, I mean ever catch up, seems like a bad investment. There are good builders, like Greg McGar, who build a great product at a reasonable price that are worth the extra money you pay for them.

    There are always good properties to buy that are worth the investment. The problem is the mortgage. Banks are the problem. Mortgages, and mortgage payments are the problem. Never in the history of Real Estate have banks had such a strangle hold on the market place. Banks gave away free money to own, and control the Real Estate market place. Banks, and mortgage companies, with the help of the government, drove up prices with easy credit terms, low interest, and the promise of low payments.

    What got lost was the actual value of what you bought with those payments.

    The quicker we get to cash pricing on property the quicker the Real Estate market will “recover.” That recovery will be that housing units are for rent, sale, or trade. They can be rented, or mortgaged for similar returns.

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  53. ARDELL

    RE: ray pepper @ 55

    Well, you know, some people don’t know the difference between a “comment” and a “post”. Whatcha gonna do? ;)

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  54. Dan

    So…how does this relate to the condo market? I’m paying almost $1,700/mon for a rental condo right now. If I can buy something for $200K, even if I lose 10% per year in value from continued deterioration in the housing market, wouldn’t I still be ahead? Granted, the $200K condo won’t be as nice as the one I’m in now…but still, I’m “losing” $20K a year in rent anyway. (I know there’d be HOA, Insurance, Taxes)

    I guess what I’m asking is…is the math different at the low-side of the case-schiller? I just want a place I can own and toy with to make it mine. Wondering if there is “that much” to lose at this point if I’m on the lower side and not playing with $500-1M houses.

    DW

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  55. Anniey Tom

    Buy Low,

    May be possible. But to

    Sell High.

    You’ve to wait …..
    Don’t know how long…

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