I like your hair!

My pleasure Anna. And I do agree with David that prices are more correlated with incomes and rents than with interest rates. But, the point remains that the lower the rate, the more purchasing power a buyer has, period. If rates increase and prices don't decrease (which unless we get way into the double digits, I don't think price decreases will fall drastically.) - today's buyer will get more house for the same monthly payment than they will if rates go up.

Purchase price is important, but so is monthly cash flow. Because unless you're shelling out CASH for the entire purchase, it really boils down to how much of a payment you can make per month which in turn determines the purchase price you can afford.

And again - I do thank y'all for at least not dissing my hair.

Luba, thanks for your comments, late or not. Definitely want to hear from Realtors with a different twist on the current market, and I am happy, nay thrilled, to have you put your original quoted comments in better context. I’m just here to stir up debate. Thanks for making it an intelligent one!

So I'm a little late standing up for myself here. At least my hair didn't get dissed. For the record, taking one blog post out of context without knowing the advice I give to each of my individual clients INDIVIDUALLY is kinda BS. I give my opinions on my blog based on general market info. I still think it's a fabulous time to buy, FOR THE RIGHT BUYER!!!! That means someone with a large down payment, a large income and a plan to stay in their home AT LEAST 5 years. Read some of my other blog posts and tell me my job is to "sell." My job is to help sellers that want to sell, sell. And my job is to help buyers that want to buy, buy. If that means I tell them to hold the hell on and call me in five years, I have no problem doing that, and several of my clients can vouch for me in that respect.

I'm not looking to be a rich realtor, which means I don't push people to buy or sell. I'm looking to love what I do for a living (which I'm fortunate enough to do), and that means helping individuals to make the right decisions for THEM at the right time.

And I'm still sticking to the story that buying when interest rates are low is better. You get more purchasing power and if you do it before rates go up, you can maintain a relatively low monthly payment.

I'm bummed to see I missed this whole conversation months ago.

And David Gordon - your cynicism about Realtors is just ridiculously generalized. Until you've met me and talked to my clients, I think it's a little brash of you to decide that my only goal is to push my clients into buying or selling a home. My goal is to be their real estate resource for life - and that doesn't always mean getting them to make a deal NOW.

It's never a good idea to overpay for an asset.

That's how it hurts. Again, let's say that you buy a house for $500,000 at 6%, putting $100K down. Pretty normal these days (well, a little on the cheap side for the Bay Area, but getting there).

Your PITI payments would be about $3000. After 5 years, you have paid down just under $28000 of the loan, leaving you with $372,000 to pay off at the sale.

But wait, interest rates have reared their ugly head, and mortgage rates for your putative buyer are 10% (they were 9+% in the early 90's so this isn't out of the ordinary). Now your buyer is looking at $4150/month in PITI payments. So incomes would have had to have gone up 30+% in just 5 years to accommodate a break-even price for you.

In fact, if incomes remained relatively the same, your house is now "worth" $365K, and you have lost your entire down payment and principle payments AND another $7000. You're more than wiped out.

Now you may argue, correctly, that rates will only go that high if inflation comes back higher, meaning wages (and equivalent rents) will increase (not to mention you're paying back with inflated dollars, etc). Of course this argument fails a bit when REAL, inflation-adjusted wages decline, as they have been.

This is why I tend to ignore interest rates, and also why prices are more correlated to income and rents than interest rates

Well, thanks for acknowledging that agents might know a thing or two about the market. That's a nice change. Now, for interest: maybe you can buy down interest later in the term of the loan, but if you start with lower interest, how is that not a benefit? Buying in times of low interest can only help, not hurt, overall.

I like the point about interest NOT being a reason to buy coming out here. A lot of would be buyers don't really think about re-fi as an option, only seeing the initial picture. The price really is the constant, and so should be the issue most paramount when deciding to (or not to buy).

I also was not basing anyone. Mainly I was interested in how the same data can be used to paint so many different pictures. This phenomenon is univeral and certainly not the domain of Realtors.

@ Tired of Slams- Yes, of course it is possible, and I'm sure some actually do (but less than 1%) understand fundamentals. But MOST are too busy working on deals and leads and coordinating closings to truly spend the necessary time to study the market, history and things that economists and wanna-be economists (uh, me) do. That being said, I think a Realtor's job is not to tell you when you should buy/sell - that's YOUR job as seller or buyer. That's my opinion anyway. There's an inherent conflict of interest to let the Realtor make that decision for you.

But you are right about holding onto a property for 8-10 years and likely being in a better position, even if your timing was the worst possible, you'd likely be slightly ahead in nominal terms.

David nailed it. Never never never buy based on rates - you buy based on price. You can change the rate later but you can't change that inflated price you paid!

I'm not slamming her, her argument is inconsistent. If prices went up due to interest rates dropping, then prices will go down due to interest rates going up. All things equal (payments), I'd rather buy a house for less money at a higher interest rate, hoping to refi in the future or if interest rates drop again, my house will be worth more cash to me when I sell. Now, I actually believe that home prices are much more correlated to rents & income, but I'm pointing out the flaw in her argument.

As for agents knowing the market well--you're right, a lot of them know the market quite well.

The problem with hoping to make a return 8-10 years from now is the likelihood you'll be forced to move in less time than that. If you've never been in that position, great, but it happens to a lot of people, and if you're likely to move in less than 5 years, it's probably better to rent.

that's all

Is it possible Realtors know the market fairly well, and are giving good advice to would be buyers? SF has never really let us down, long term. If people can get in for less now, they will be glad they did in 8-10 years when the market has recovered and their investments pay off.

Always be wary of a realtor/blogger! Their job is to sell, not give impartial advice based on empirical evidence.

spin this, someone:

http://www.sfgate.com/cgi-bin/...

david- Luba's comments are indeed confusing- the interest rate part as well as the bit about Donald Trump, because if we took his advice, we'd buy up District 10, where prices have slumped, investing then on the hope that area will recover and allow us to realize a profit. But I'm not sure we'll ever see profits like we have in the past, especially in those areas that are likely only going to get worse, given the tenor of the economy.

It's funny [to social scientists] when people try to refute aggregate statistics with anecdote!

Meredith may nail the problems with Case Shiller well, but then she appears to fall into the same trap by talking about San Francisco county as a single entity - read her replies to comments on her blog regarding Case/Shiller. As David points out, there are significant segments of the SF market that are themselves showing big issues, whereas others (particularly at the top end) are very strong.

I'm confused. If part of the reason R.E. boomed was lower interest rates, and interest rates are "creeping up" what does she (and others) think will happen to R.E. prices? They'll go down (if that's the reason R.E. boomed--I'm skeptical of that, but I'm pointing out the logical inconsistency here).

So she and Donald are right, you don't want to wait for prices to go up before you buy, but you don't want to buy before prices go down, and using your own logic, they'll go down as rates go up.

Hmm.

So, then: it IS a good time to buy in certain districts, but not in others. Right?

Great topic, Anna. You nailed it here. SF really is a tale of submarkets within our small (geographically speaking) city. You have a strong SFR market in good neighborhoods where desirable properties receive multiple bids over-asking, but then condos/lofts in most places, as well as SFR's in outerlying districts, are showing major weakness and price reductions.

I rarely agree with realtors' assessments, but Meredith Martin nailed it as well. I really like the Case-Shiller index (it's the best available metric using the repeat-sales method) but it doesn't mean a thing for San Francisco the city. Because of the low volume in the city compared to the surrounding areas she mentioned, it is more representative of the areas EXCEPT San Francisco.

Realtors saying "it's a good time to buy". I tell you, I'm shocked!!