We know this letter was sent and intended for another destination, but oddly enough it showed up in our inbox. Actually, the sender apparently swings both ways and sent it to us too. Since we live in SF, we’re totally cool with it, and we figured we’d share it with you.
Dear [other site],
I’ve noticed lately that the mood [of your site’s] commentators ha[s] turned decidedly bearish. Perhaps the market in SF is finally started to strain and people are figuring it out. I am personally very bearish on the market. In fact, I sold my home in the summer of 2006 and rented for almost a year and a half due to expectations about the market.
Having said that, I recently jumped back into the market. … I bought a place that sold in 2005 for $1.1m but I snagged it for $800k (following a foreclosure). This is what peaks my curiosity: when do fellow readers [of your site] think that the time is right to enter? Seems like most of [your] commentators are content to sit on the sidelines forever. But is a 20% haircut on a property a good deal? 30%? What would it take?
I read an article in the WSJ this week that analyzed previous housing downturns and illustrated that when they occurred, they were always followed by large rate hikes. This makes sense. If assets are declining in value (or likely to do so) banks are going to want a higher risk premium at some point, to protect themselves. We have not seen that yet. Rates are exactly where they were last year. This is what prompted me to jump. A steep discount and still-low rates. But if rates climb next year, will prices decline enough to offset the increase in payments? Nobody knows.
In any case, I’m pretty convinced that prices will continue to decline. I also see risk spreads increasing, which means that whatever the Fed does is not going to matter too much. They can’t force banks to lend cheaply to consumers, even with low overnight lending rates. Mortgage rates can move in the opposite direction of the Fed and I think that’s likely. If the Fed has to stop due to inflationary concerns, it could get ugly.
Anyway, this just seemed like an “angle” that most aren’t considering. When exactly is the right point to re-enter? I get the sense that most people are expecting 50% haircuts, but it doesn’t seem realistic…
“When exactly is the right point to re-enter?” We’d have to think the other site’s answer will be never, but we’ll go ahead and say the time is right when you, and you only, are ready. Apparently, that time came. Good on ya!
Cheers to you “Dave”, thanks for sharing, and congratulations on your purchase.