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I’m sure there is a lot of reason’s why you may feel you shouldn’t buy a home right now, but here are reasons you should.

1.  You are an investor with a long term view to acquire properties that should appreciate during the next cycle while cash flowing in the short term.   Great investors don’t buy in hot markets, they buy when no one else wants to.  In Denver, one of the best deals of this type are in close proximity to current and planned transit oriented developments all across the city. Check out the Overland neighborhood of Denver and the University Hills neighborhood.

2.  You are not a current home owner and have good credit.  You sir/or maam are a hot commodity.  You should take advantage of that.  The smart money may realize that the current low interest rates on mortgages + downward pressure on home values = A great deal.   You have a chance to ‘lock in’ a payment for your living space.  Your rent in many areas of Denver is expected to rise along with inflation and eventually demand.  Inflation when you own a home is a good thing.  In many ways, inflation can actually help the home owner.  The payments over time ’seem’ more affordable as competitive wages adjust to the cost of living changes.  In addition, home values traditionally keep pace with inflation over the long term.  By picking the right area, you can combine the gains from inflation with actual appreciation that comes when an area is revitalized (Gates redevelopment in Southeast Denver, Platte Park) or business moves into the area (Check out the Fitzsimmons area of Aurora).

3.  You need a place to live.  Sure you could rent a place, but you’ll soon be back in  the same situation again.  Many homeowners will now be open to leasing a home with the option to buy it.  This is rarely an option in a hot market.

4.  Your current home is inadequate.  Often, you just need to make a move.  In this case, the overall market just doesn’t matter.  When you sell a home and buy a home in a similar market, it’s likely that the value that you think you are losing is balanced when you consider both sides of the home equation.  The increased inventory can make it hard to sell but it can be also give you more choice when its your turn to buy.

5.  You just want a good deal.  Good deals are to be had if you know where to look.  If you want a good deal, buy a home in a market that is continuing to appreciate even now.  For example, Denver Highlands up 10%.  “But I thought this was a buyer’s market”.  Or buy in an area that you expect to recover first such as DU, Rosedale, Washington Park.  These are all close to the popular parks, nightlife, and of course Denver University while still having easy access to downtown and the Denver Tech Center.  Trying to locate a foreclosure deal in one of these neighborhoods is highly unlikely.  Rather than looking elsewhere at foreclosure in depreciating areas, buy the best VALUE in the best neighborhoods that you can afford.  Now that would be a good deal.

Can you imagine what the Mona Lisa would look like if Leonardo da Vinci worked quickly with a 4 inch brush?  He probably would not have caught the details necessary to communicate his intent and we likely would never have even heard of this masterpiece.  If the details get lost in translation, much of the artist’s intent will be lost.   Similarly, it’s difficult to communicate complex ideas with just a few words.  A couple months back Jim Cramer of “Mad Money” made a few broad statements about the housing market.  Anyone that watches his show “Mad Money” knows that he claims that there is a bull market in every market (stock market) and he’s going to help you find it.   I find that interesting  coming from a man that said on the Today show that ‘anyone that bought a house now would be making a big mistake’.  Where’s the positivity for the housing market?  In fact, he even said that anyone that bought a house then would lose money.  That’s a pretty broad statement and of course, Realtors and sellers everywhere got all worked up about it. 

The media loves to overstate fact in order to generate some fear.  They love to stumble across the financial equivalent of the ’if it bleeds it leads’ statement targeted to get the public to stop and stare.  Scared out of their wallets, afraid to make a move.   Combined with their love to oversimplify, they start getting dangerous.  They love to pretend their audience isn’t intelligent enough to make their own decisions.  Instead, they make the decisions for you.  That’s not conducive to good investing in housing or otherwise.   Most investors know they can’t just buy the stocks that get hyped each day on CNBC.  They know they need to dig a little deeper.  Sometimes when most people are saying sell, that’s when you need to be buying.

Real estate can be just as complicated as the stock market but thankfully, real estate moves a little slower.  There’s a lot more real estate markets and homes out there than all the stocks that Mr. Cramer claims to have in his head. (I think he’s claiming 2000…)  Certainly, the opportunities in housing have to exist.  I know what and where they are in my area and I’m sure if you work hard enough, you’ll find them in your area too.  

Anyway,  Cramer was on his show yesterday and mentioned that with the rate cuts, he thinks it could be a good time to buy a house again.   Funny part is that, during the time between his first public denunciation of real estate and his recent reprieve, not much has changed in Denver or anywhere else.  Just the Fed’s interest rates.  Mortgage rates will eventually follow but truth is they weren’t bad three months ago.  Some of the outlying areas of Denver will have some issues with the foreclosures, that hasn’t changed.  Maybe the only thing that changed is the fact that media feels it needs to put a new twist on the news.  

 For the most part, the new urbanism movement in Northwest and Southeast Denver has helped those areas of the city through most of the slump.  In fact, I pity the people that passed on the home they wanted in these areas based on news that they should be waiting for a better deal.   Most buyers are looking for the 20% price reduction that will never come.   It’s their loss.  I’ve said it before.  The rest of the country’s problem isn’t necessarily Denver’s problem.   We are not immune from the problems but all the factors that contribute to a strong local economy are still in place.   So don’t get worked up when you hear incredibly outlandish statements saying to ‘do this’ or ’don’t do that’.   There are always opportunities if you know where to look.  I’m sure a sane Jim Cramer would admit to that.

 …have you ever noticed Mona Lisa’s wandering eye?  Maybe she spotted a deal over the artist’s shoulder.

  I’m putting on my armchair economist’s hat today.   I’m still amazed that people would get excited enough to buy stocks just because the Federal Reserve announces a rate cut but it happens more times than nought.   You would think that a savvy investor would buy a particular stock based off of expected growth of the asset or the strength of the company’s financial statements.  What happens when you toss the homework aspect of a purchase aside?  

I think the Wall Street adage is, “Bulls make money, Bears make money, Pigs get slaughtered.”

In my opinion there are only three actions a smart trader would take:  

1. Absolutely nothing.  No reason to buy or sell right then.  Plenty of reasons to wait for the volatility to decrease.  Double check your facts and assumptions based off the new information and revisit the stock later.
2. Short term day trade.  Very Very Short term.  A little risky but to some a drastic, yet predictable, price move could mean a pretty penny.  
3. A move to safer ground seeing that the Fed has reaffirmed that yes, things are slightly less rosy than when they made their emergency rate cut.  Thus, when you see your position spike for no good reason, you’d sell and get into something else…or maybe take your position down and wait until tomorrow.

Now, I’m not a economist or even a stock market analyst, so don’t get too worked up if you understand this much better than I do.  I know this is an oversimplification, but my understanding is that rate cuts are applied when the economy is slowing down.  So when the seven economist types that sit on the Federal Reserve Board of Directors get together, and six of them vote to cut rates by a half a point,  my take away on that would be some concern that there could be some problems in the short term with the economy.  Problems with the economy usually doesn’t bode well for most stocks.  At least until the stocks account for the expectations in the stock price.  So when I see a rally like I saw at 2 P.M today, I try to think about what the people were actually thinking.  The truth is, the people that were buying weren’t really thinking. 

Those that were buying, for the most part, were buying based off emotion.  That’s pretty dangerous when you’re making a purchase.  Whether it’s a stock or a new home, it’s a safe bet that you should only make the purchase if you really understand what’s going on.  What is the asset worth?  Do I need to buy it now?  What’s the advantage of buying right now?  If I wait, do I miss an opportunity or will I pick it up next week cheaper?  Do your homework.   For the stocks today, the simple explanation of it is that everyone expected that there was going to be a 50 basis point cut today.  They’ve expected it for weeks.   It’s been so expected that it’s already priced into the stocks.  So when the Dow Jones Industrial average goes up 226 points without any real basis for it, and especially since the underlying factors actually suggest some negativity in the underlying assets, the smart money that already owned the stock would probably sell,  right? 

 

A study released on October 31,2007 by S&P Case-Shiller shows Denver leading the country in price appreciation.  While the numbers are not staggering, Denver’s subtle growth marks a stark contrast from the drastic price drops of other cities across the United States.

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Just for fun, I wanted to take the pricing data stats from my previous post about market timing and apply a slow stochastic to the prices.

Here’s essentially how they work with stocks.

On the lower part of the image is an example of a slow stochastic. A buy signal is interpreted when the %k (green line) crosses up over the %d (white line). This is most important when value is crossing up from 30. A sell signal is the opposite. When %k is crossing down over %d from 75 (numbers on left). Go ahead and ignore the right numbers and red line for now. Essentially stochastics are trailing indicators of price trends. Trading decisions should never be made entirely from an indicator. It’s just an illustration of a trend over a time period. Depending on the time period you’re looking at, long-term and short-term trends can be identified.

Now, that being said. Here’s a slow stochastic showing short term (seasonal) market trends for the Denver Real Estate Market.

The stochastic demonstrates the change in price trends

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You know that creepy home you’ve always wanted? It’s for sale.

This “gem” is from a recent Craigslist post by an owner trying to FSBO his home. I’m always on the lookout for a fix-n-flip, but I think I’m going to pass on this one.

It’s important in real estate investing to know your limits. Figure out the type and size of project that you would be willing to take on before you start looking. Otherwise, you’ll rush yourself and overlook obvious things just because you’re so anxious to get started.

I bought a creepy home once. It sent chills down my spine every time I walked through the door. I would buy a lot of different homes, homes that need work, homes with structural damage, homes with bad neighbors or even backing to a busy street. But from now on, I’m going to draw the line at creepy.

Technorati Tags: Real, Estate, FSBO, Creepy, home

You’ve spent three months on the internet looking at homes until you’ve narrowed down the area you like. You then spent another month looking at what’s available and have finally narrowed it down to one. You want to make an offer but don’t want to spend too much. How do you start the negotiating process?

What is a home really worth?

There is going to be a difference between what you would be willing to pay and what somebody else is willing to pay. Would I buy a home if I can rent a home in the same neighborhood for half the monthly cost? How highly do I esteem the large yard? Is it more work or a great place for the kids to play? The value of the home really comes down to what it’s worth to you. Read the rest of this entry »