Time to buy? Outside of California...

[JosephK_IHB]

Hi all,



Longtime reader (since late 2006!), and first-time forum poster here. I lived in Los Angeles from 2000-2006, witnessing all the bubble craziness, and am now living in the Quad Cities (Iowa/Illinois border), preparing to buy a home. I suppose in some sense I already have an answer to my own question, but since I've learned so much visiting this blog over the past couple of years I wanted to get some input from the smart folks I've encountered on this blog.



Our situation is as such: just my wife and I, no children, first-time homebuyers, immaculate credit, zero debt, and significant savings. Homes here in the Quad Cities are extremely affordable (e.g., 2000 sq ft on 1-acre lot common for around $200,000), but in many ways I feel like this market is even less predictable than California's: while the bubble didn't inflate nearly as much, the credit crisis and economic collapse is a national (nay, global!) one, and lowering tides sink all boats (to reverse the metaphor). So it's hard to assess how much more it will fall here, if at all.



Anyway, here's my question: with interest rates jumping up sharply (presumably for the long haul), and hundreds of thousands of loans re-setting (mostly in Cali/Nevada/Florida, but still with national effects I'm assuming), are we expecting another NATIONAL price drop between now and 2010? I know that real estate is local, etc. (my real estate agent loves to repeat that, ad nauseum), but the fact of the matter is that the medium-sized towns in the Midwest that did not bubble up much are still affected by the bigger problems in other large markets. So I'm loathe to buy a home at these higher interest rates before their effect on reducing prices has a chance to be realized.



Sorry for going on so long, but I'm surprised at how difficult it's been to get "straight answers" here in the Quad Cities, mostly because there just aren't awesome blogs like this one for that area. Just today, my wife and I decided to reject the last counter-offer from a FSBO seller who was relaying to us that there were other prospective buyers contacting him, and he wasn't budging much in price. While his home is perhaps a fair deal, it didn't seem like a deal I'd expect in a buyer's market, and the implicit "threat" of a bidding war just turned us off completely. So we're re-starting our search, slightly disappointed, but hopeful that deals will just get better--if not yet this summer, then at least before December so we can take advantage of the tax credit.



Thanks for letting me air out my thoughts! Any input appreciated....

 

[Geotpf_IHB]

Areas like the midwest that didn't bubble up as much won't go down as much. The "all real estate is local" bit is actually true, IMHO. How is the local jobs situation? That will be a big factor in a non-bubble market such as yours.



As for the eight grand tax credit, there's a chance that it will be expanded to $15k, with all the restrictions (income limits and first time buyers only) removed:



<a href="http://online.wsj.com/article/BT-CO-20090611-707260.html">Link</a>



Of course, rising interest rates might wipe out the advantage of a bigger credit, if it really does pass.

 

[JosephK_IHB]

Thanks for the response, Geotpf! Yes, I agree with your comments about the relatively smaller effects of the bubble in less-populated and/or non-coastal areas. The local jobs question is a bit tougher to answer--I'm still learning about the Quad Cities, but it definitely has at least a partial Rust Belt identity, though not quite like some of the harder-hit cities in the Midwest. It's definitely been a concern for us, since unlike larger and more cosmopolitan metropolises like L.A., San Francisco, or even Chicago, the risk in buying a home more expensive than the median homes is the lack of move-up buyers. The Quad Cities has a large blue-collar, working class population, and we have to consider what the local buyers consider a desirable (and affordable) home before making our purchase. In other words, while in Irvine and L.A. you can probably find multiple buyers for every style and price point, the risk here is that quirky or expensive homes (or even homes with in-ground pools) will be a much harder sell to the typical Midwestern buyer.



Anyway, your input was very helpful, and so was that link. Thanks!

 

[no_vaseline_IHB]

I've always asked myself - "How can I maximize my housing dollars?" - and by answering that question with a calculator and a piece of paper, been very satisfied no matter where I lived.

 

[GoIllini_IHB]

I don't consider the current tax credit a good deal for a home buyer, unless it's a permanent part of the tax law (which it isn't). The purpose of the program is to temporarily keep prices high, so fewer current owners are under water on their loans and can therefore refinance their horrible loan resets. For the seller, it means a higher expected price on the sale of a home. As a buyer, this works against you in negotiating a purchase price. You are able to offer a higher price, since the government is giving you back $8,000. Other potential buyers are also in the same situation, so the end result is more bidders and a higher price.



But what happens when it's time for you to sell? Unless the tax credit is available to your potential buyers, they won't be able to offer you as much. They won't get money from Uncle Sam. In areas like the Midwest, where house prices do not appreciate as much, that missing $8,000 will have to come off your selling price unless Uncle Sam is permanently in the business of subsidizing home purchases.



That being said, I would not be afraid to purchase this fall in the Midwest for a long-term situation. I purchased a small home in the St. Louis area last November. My brother and his family live in it. We got a great deal from the bank that owned it, since we made an all-cash offer when NOBODY had mortgage money available. It definitely costs less to own than rent in that area.