BUT, WHAT IF HOUSE PRICES KEEP DROPPING?
Here’s a BUT question I encountered a lot while searching for property in Florida in late 2010. Seemed like the conventional thinking was property prices were going to drop to zero. I remember a particular encounter when this question popped up. It was during a bank visit to see about getting a loan. They wouldn’t talk to me about a loan but they did talk to me about setting up a wire transfer service. I’d be using the service to pay for houses I wanted to buy. I’d be paying cash; no need to bother the bank about a loan anyway.
As I started filling out the forms to set up the wire transfer service, the young lady at the desk started up a conversation, “What brings you to Florida?”
“Oh, I’m looking at houses. I’ve never seen such good bargains. I was afraid of missing the window of opportunity but it still looks like there’s plenty of good buys out there.” I answered like an excited kid on his way to Disney World.
I wasn’t expecting her excitement dampening reply.
“I would never buy a house. Never. I bought one before. Thank God I got rid of it; took a big loss. But, I’ll never buy another house again in my life. And, all my friends feel the same way. None of us will ever buy a house again. We’re done. Suckers no more.”
Saying ‘I couldn’t relate’ would be the understatement of the century. It would probably be like me hitting her with the following, “I would never buy a cell phone! Never. I bought one before. Thank God I got rid of it; took a big loss. But, I’ll never buy another cell phone again in my life. All my friends feel the same way. None of us will ever buy a cell phone again. We’re done. Suckers no more.”
NOTE: Mobile phone = Cell phone.
She would probably look at me like I just beamed down from an earth orbiting alien star-ship.
Well, I think that’s the look I gave her. When I finally regained my bearings I asked, “Why do you say that?”
Her answer made me believe in aliens.
“Come on. People are getting slaughtered. House prices are tumbling. People owe more than their house is worth. People are walking away from their mortgages. Why would anyone in their right mind buy a house? Especially now?”
I couldn’t resist talking to an alien … “Well, I don’t know about everyone else, but I’ve never seen better buying conditions. I can buy a practically new 3 bedroom home – ready to rent – in a nice neighborhood for less than the cost of the materials used to build it. The prices are lower than they were 10 or 15 years ago. And, I can make a 10% or more return in the current rental market. The prices have come down but the rents have stayed the same or gone up. I guess my questions is this … why aren’t more people buying?”
My alien banker tried to talk me out of my property madness; tried to save me from myself, “Why aren’t people buying? Are you kidding? Nobody has any money. And, if they did, they wouldn’t be buying a house with it. That’s crazy. You’re right, rents haven’t gone down, but property prices are crashing. Are you sure you know what you’re doing?”
“I already have two rental properties here and when I first bought them 10 plus years ago, they cost more than what I could sell them for now and the rents were lower. I thought they were good deals. They’ve worked out well for me. Now, I have the chance to buy similar homes – that are practically new – for less money and the rent is a lot higher. Why would I not do it?”
And then she hit me with a classic “BUT” question,
“But, what if house prices keep dropping?“
She asked as if she had me in checkmate. GOTCHA! She asked as if she was clairvoyant and knew house prices were going to drop even further; as if it were a fact; just hasn’t happened yet.
I was starting to enjoy my conversation with my host from another universe, so I calmly responded as follows:
“Seems to me, last time I was in Florida – back in 2005 or so – the biggest complaint people had about the housing market was the prices were too high; nobody can afford to buy a house anymore; can’t get a home cause prices are too high. So, now you’re telling me the complaint is prices are too low; don’t know how low they’re going to get. I’m confused. When the prices were high, people complained. Now they’re low; people are still complaining. I guess my feeling is this, the deals – as they stand right now – are the best I’ve ever seen, so why would I want to miss this opportunity? Why would I want to miss out on bargains?
“And, my feeling about house prices dropping even further is this … Who cares? If house prices drop further, I need to roll up my sleeves and find a way to buy more. Hey, here’s a crazy idea, what if house prices rise? What if they go back to their crazy 2006 highs? Wouldn’t that be just terrible, especially if you bought a dozen houses at today’s prices?”
My friendly alien banker had enough of me. “Thanks for your business Mr Ives. Good luck with your house hunting.”
This encounter pretty much sums up the reaction I got from most people as I scurried around looking for houses in Citrus County Florida back in late 2010.