“Don’t Believe the Pundits” or “Timing is Everything”

In early 2005, we were looking to move out of our house in North Hills. At that time, I extensively followed the real estate market. In March 2005, I wrote:

First, no one is predicting that the prices will go down; rather, they will just slow. The speculator factor that led to the crash in the early 1990s isn’t there. Rather, the rate rise will slow. However, as long as it is well above the salary increase rate, housing will still increase faster than incomes, and more will be priced out. Don’t believe me? Housing values are currently increasing at just over 20% per year. Let’s assume they slow to 10%. How many professionals are seeing 10% annual raises. Unless appreciation goes negative, it still makes sense to buy now and refinance when rates drop.

In April 2005, I wrote:

The Daily News has an interesting article on the fluctuating housing market here in California. The data over the last 37 years shows that the up cycles, like this one, are strong and long, and the down cycles are on the weak side and short. Over the past 37 years, California’s median price soared 1,843% versus 821% for the nation. But the nation’s median price never fell, though some annual gains were anemic. Sales in California have fallen 11 times since 1968. The important thing is that the longest periods of decline were three years each, first starting in 1980 and then in 1990. The first was due to a huge spike up in interest rates and the second due to a nationwide recession, which in California felt like a depression. That doesn’t appear to be happening this time.

So the pundits were predicting that the bubble wouldn’t burst. In January of this year I noted:

The Los Angeles Times is reporting that Southern California home prices rose last month at their lowest rate in nearly four years while the pace of appreciation for all of 2005 slowed for the first time since 1999. Specifically, the median home price in December is 13% higher than a year earlier, at $479,000. Many homes are taking longer to sell, with the average duration on the market about three months compared with one month a year ago. According to the Daily News, next year appreciation could be in the 5% to 7% range.

By May it was:

According to today’s Daily News, “In May of 1990 we could look back and say the market tanking started in November 1989.” We bought our house in Northridge, CA (“Donna”) in June 2005. According to the same article, “Reports last week from the Southland Regional Association of Realtors and DataQuick information systems showed that the annual rate of appreciation of previously owned homes sank into single digits here and across Los Angeles County for the first time since 2001.”

This evening, I opened up yesterday’s Daily News. What did I find? An article noting “This real estate market is in a dark period, and it’s just not the time change either. Pain is trickling down.” Basically, their point is that it is a dismal market, and won’t improve soon. What are they predicting for the October numbers? “…a sales decline in the high 20 percent range and the median price of a previously owned home close to where it was this time last year.”

When we bought our house in North Hills in 1989, the market tanked shortly thereafter. Looks like its doing it again. My wife wanted to buy sooner. This is what I get for not listening to my wife. I should know better, after 20 years 🙂