Buyers Are “Waiting For Godot”?

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In Malcolm Kaufman’s most recent “Pulse of the Market”, he makes an excellent comparison of the new buyer mentality as one that closely resembles a play he had seen in his early college days, “Waiting for Godot”, where the play “follows two consecutive days in the lives of a pair of men who divert themselves while waiting expectantly and unsuccessfully for someone named Godot to arrive. They claim him an acquaintance but in fact hardly know him, admitting that they would not recognize him were they to see him.”

You see what Malcolm is getting at here…Godot being the bottom of the market. We are all waiting for it, but when will we see it, and will we even know it when it arrives? General consensus is that we will see Godot sometime in 2009 (Godspeed!), but how will we know?

Free t-shirt for the reader with the most clever comment on how you’ll know when Godot (the real estate version) arrives, when he’ll arrive (if you nail this one, we’ll come up with something better than a t-shirt for you), and what you’ll do when he gets here.

[Disclaimer: We’re currently in talks with a manufacturer in China for a product that helps you see Godot. We’re making them for $.10 and they will soon be on sale at WalMarts, and in McDonald’s Happy Meals around the world.]

25 thoughts on “Buyers Are “Waiting For Godot”?

  1. The “Waiting for Godot” thing is sort of funny. But he quotes Wikipedia when he describes it, and it’s sort of wrong, like a lot of Wikipedia stuff. They don’t divert themselves too much. They don’t do much of anything! The play sort of squarely examines boredom and ennui. I’d say would-be buyers right now are a whole lot more active than the characters, Didi and Estragon or something? Can’t remember. Buyers have no problem zipping around and checking stuff out! THe Godot characters just sit there.

    And that reminds me of a point somebody brought up on another website. We ARE seeing buyers at open houses. They aren’t opening up their checkbooks, and understandably so. But they’re making the rounds. Why is that? I think it can only be said the reason is because people by and large haven’t given up on real estate. If it were truly bleak, and there was no future at all, would there be any looky-loo activity, other than neighbors? The Godot characters exist in a bleak world with no future. I don’t think that’s us.

    Another hugely influential playwright died over the holidays, Harold Pinter. (Samuel Beckett wrote “Godot”) Sort of funny because r.e. blogs are more Pinteresque than Beckett-like.

  2. I know when the market has bottomed.

    It’s when the property in question is cash flow positive based on 20% down, 30 year fixed loans.

    Some are there, some are *not*. Rent vs buy on the peninsula will save you $20K-$70K a year right now.


    People are going to open houses because they’re seeing if they like the house. If they like it, they will buy it once the prices make sense.


  3. Obviously it was not funny that a great playwright died. I meant to say that, “It’s sort of odd, or funny to think that …”

  4. We ARE seeing buyers at open houses. They aren’t opening up their checkbooks

    Small point: They’re not buyers unless they open their checkbooks.

    Nice post otherwise. Who knew fluj knew his Beckett?

    Larger point: I think the RE market is less about bottom calling than it is with general fiscal stability. Otherwise, new car sales would not be off > 30% YOY. (Everyone can still afford a Toyota, right?)

  5. Godot will be here in July of 2009. The way we will know that Godot is here is when Warren Buffet comes to San Francisco and buys 50% of the homes on the market.

  6. Melissa,

    Me thinks Buffet invested in the product the Front Steps is manufacturing. Who’s going to represent him anyway?

  7. Given the existence as uttered forth in the public works of Puncher and Wattmann of a personal God quaquaquaqua with the white beard quaquaquaqua outside time without extension who from the heights of divine apathia divine athambia divine aphasia loves us dearly with some exceptions for reasons unknown but time will tell …

  8. I resisted the temptation to post on this silly godot thread all day but I can’t resist. The whole concept of calling the bottom in real estate is silly. Real estate moves slowly. Yes, it shot up over the past 8 years and shot up very quickly. That is what happens in bubbles. Make no mistake about it — there was a housing bubble and there is still a housing bubble.

    Unlike the stock market bubble that has already had it’s initial bursting — real estate will not react quite so efficiently. Fortunately, the audience here generally has at least a CC degree ;) so I don’t have to explain this concept. But it does surprise me to see so many people quick to call the bottom or even attempt to predict the bottom. The domestic (forget the global) economic situation is still very fragile right now and to think that real estate will be at the bottom before the larger domestic economic issues are resolved seems awfully naive.

    We are in the middle of a very scary and quasi-uncharted global economic situation; and even though there are a lot of people that would love to buy a home who will always be looking — there are a a lot of factors that will keep people on the sidelines for a very long time. Sure there might be some govt sponsored incentives to buy, and more incentives to keep people in their homes, but until the fundamental principles and historical real estate averages return to their true averages (with the proper adjustments for the SF market which will always command a premium) I don’t think anyone can ‘call the bottom’.

    Further to the point, one persons bottom is not necessarily another persons. If you have a 15 year horizon and can finance your home purchase w/o stretching your budget than you are probably OK to buy today. If you might have to move in 48 months — you are simply a fool to buy in this market given the potential risk of further declining values.

    I suspect that we won’t really ‘understand’ the bottom until we are truly 3-5 years past the bottom because comparing normalized real estate prices factoring in all of the external influences (gov’t incentives, deflation, exchange rates, income/wage changes). That is to say, if an 800k home sells for 900k in 5 years but the average salary grows 1.5x over the same period than it’s really hard to compare these things. Factor in all the external factors and this is going to get very complicated to analyze.

    In closing, real estate prices are complicated and are slow to give back returns/gains. It’s going to be slow and painful is the best I can guess.

  9. Also, much like the movie — godot may simply not arrive. Life, imitating art, imitating life…..

  10. Amen Eddy.

    my 2 cents.
    – “we won’t really ‘understand’ the bottom until we are truly 3-5 years past the bottom”. For SanFran, I *predict* that [pick one] there wont be any bottom, or there will be many bottoms. [to me, it’s the same]. Example: the bottom on a suburb sunset standard house (one among 50 identical listings) wont happen at the same time as the bottom on a SOMA-like loft (one among 50 identical listings, all the way up to the Potrero hills devpt), wont happen at the same time as the bottom for a Haight TIC, wont happen at the same time as the bottom of district 10. etc. Different markets, different demographics, different financings, different risks, different colaterals, different lifestyles etc.
    District 10 is probably already close to it. Prices are so low, I’m betting there are a few investors and developers who are taking a chance with a mere 200K cash line in their portfolio, creating an artificial bottom that helps stop the decline. I would be surprised if any *normal* SFH in district 10 would sell for less than 180K in the next 4 years (save a natural disaster or other non-financial event).
    Now, if you look at the $xx.000.000 penthouse on Market… that one is tough – selling or not selling doesn’t reflect the market. The same way that there were many multimillion several-years stalefish at the turn of the millenium, when the market was officially strong.

    – Talking about our own roof, we know/accept and deal with the fact that it’s free-falling, and our ‘vision’ is to become positive in 10 years from now (all considered, incl mortgage, maintenance etc). And it’s our responsibility to make sure we don’t “have to” sell in the mean time.
    for “fun”, I zillowed several addresses around the bay area. Fairfield is -60% in 12 months for a suburb SFH. Fremont is a small positive in 4 months for a suburb SFH. And the graphs for those two properties have NOTHING in common (not the %, not the dates, not the “breathing-up-and-downs” ). So how could we predict anything when left backyard is strong, and right backyard is sinking?

    – last, there is a rather unique aspect of immigration in the (extended) sillicon valley. Some brains loose their jobs/visa, creating vacant units, and some get their citizenship, which mean often that the following day they are on the market to buy, to anchor themselves (at last). They also have some capitals abroad – with an option to bring more cash into the Bay Area. Selling a rented-out SFH in Berlin to buy a SFH in SF is a personal move that is not impacted by the economy (sell high, buy high vs sell low buy low are somewhat equally valid). And those are events that mess up any “standard” financing scenario, thus any prediction on the bottom.

    ((my very short answer is that I dont see Godot anytime in 2009. I can predict a breathing up and down [or down and up, either way, one canceling the other] in the next 3 months, but my take is that until the fall RE season [sept 1st-thanksgiving of 2009] and its stats are out there is nothing to predict.
    This year will have everything from horror stories to amazing deals, in a slightly slopping down market [as in *most* houses should see a -5-15% over dec2008-dec2009. ))

  11. EDDY: I hear what you are saying, but cash flow positive on a 20% down, 30 year fixed loan is a bottom.

    There is no point in RE prices going lower than that because it’s profitable to rent it.

    When that point occurs, I do not know. Houses still have a lot of falling to do to get to that point, and if a lousy job market starts lowering rents — well, prices may need to more than half.

    That said, there is nothing metaphysical about math.

  12. oooops. I forgot to mention the CREATION of RE wealth in SF.
    What everybody forget to mention is that SF is a living city, and the past 20 years have created a lot of wealth. Look at all the fixeruppers in NoeValley, Glen park, Bernal, Potrero etc which have gone the “ugly duckling way”. There are MANY more projects on the way. All the contractors and general contractors will be impacted with delay (current projects are generally funded, so that market will get hit when piggy banks are empty .. 1? 2? 3 years from now?). So the rate of creating wealth will be impacted. Who knows in which way? at which rate? remodeling takes either time OR money. If people are not in a hurry anymore, they’ll take time, but then the costs seem lower and the homeowners might very well create MORE value by starting projects that were too expensive in the past years.

    but at the end, cleaned up neighborhoods have created their own cushion to help land after the fall. (the same way that mushrooms cities in the desert have dug their own bottomless well … and we might see some new ghost towns across the States.

    –>> If you are a city big wig: this is time to INVEST in the infrastructure of the city. sewage, utilities etc… something that was conveniently “forgotten” when the hen was laying its golden eggs. Only by INVESTING can you prepare and welcome the rebound (faster and stronger and earlier than another city).

  13. Clever. Buyers are waiting for a bottom to show up that never will. Sounds a lot like Japan’s lost decade. Unfortunately the bottom kept dropping. Excellent analysis as always from TFS.

    [Editor’s note: Post was taken directly from Malcolm Kaufman, not tFS, but thanks for trying again Foolj.]

  14. zanon,

    Cash flow positive with 20% down — on multi units I believe there are a few of them out there right now, particularly if someone wanted to purchase in the areas that have been hardest hit like Bayview, Ingleside, etc. The problem is lending. Nobody will loan 80% on non owner occupied right now. Actually, I take that back. Maybe if you went into a smaller local bank with a spreadsheet, detailed experience, a compelling story, and opened an account they’d help you out.

  15. FLUJ: There are cash flow positive units — especially multi’s — you showed them to me and I believe you!

    But those are not the units waiting for Godot, which is what I thought this thread was about.

    JOE: Japan’s lost decade is now 20 years old. And I fear it will prove instructive for the US.

  16. Cash flow positive on single family residences or condos? yeah. That would probably be bottom or perhaps even subterranean.

  17. Thank you, Eddy, I thought your comments were very thoughtful and worthwhile. The SF market, according to the SF Real Estate Association, is divided into 91 sub-districts, and as Eddy points out, buyers come in many and varied forms. Buyer A, B, C etc have many different perspectives and thus view the market – top, middle, or bottom – in different ways. I used Godot simply as a metaphor and am glad that so many people took the time to comment. Thanks, Malcolm.

  18. AUDBEAR: When rent is $2K and mortgage payment is $8K and the house value is flat or declining, over 20 years you get an extra $1.4M in the bank.

  19. Zanon, what about the factor DISCIPLINE?
    after 30 years, the house is yours and you’re free to spend as much or as little on it, or sell it and retire someone else.

    considering you can actually rent a 1.4M house for 2K (I’d love to find it!), many people might not have the discipline to save maybe not the whole 6K, but 2-4K of the saving for later – the same people that reach 65yo, NEED rent control because they simply cannot move out, have no more health coverage (because the rate went over $4000/month on their 65th birthday) and basically are in trouble?

    Buying the house you live in is not just an investment. For many people is a life style choice: a choice to settle at that address for longer than if they rented, a choice to live within a home, rather than changing shell regularly, a choice to forgo the entertainment line on the budget because the home sweet home peace of mind is more important?
    There are many people who actually need to buy to feel happy and safe. One cliche would be the army kid who is fed-up of moving every year or so to another school, and buy a house as soon as financially possible. To that person, don’t say “don’t buy” – offer a good plan to buy the best possible home in the best conditions in the given time and economy!

    And you can take the exact opposite argument to say that some people NEED to stay renters, because they wouldn’t feel ok being a home owner.

    price of the case of wine $120. price of the house 1.5M. Fun and pleasure at the housewarming party: priceless. -> there is not $$$ value to the feeling of ownership, or tenancy. It’s a personal choice that need to be weighed carefully, and should be a BIG component into your talk to your Realtor ( <- read: pick GOOD Realtor, not just one who would work for any property at any price just to get a client)

  20. Zannon,

    I’m not sure that the folks who look for $2k/month rental units are the same as those looking to buy $1.5 million homes ($8k/month nut + 20% down). I’ll humor you though and paint a different picture:

    Scenario B:
    Home Purchase Price: $750k
    Location: Outer Sunset
    Down payment: $150,000 (20%)
    Loan Amount: $600,000
    Monthly Payment: $3,130
    *You can currently get a 4.874% 30 year fixed mortgage at Wells Fargo if you qualify.

    Proposed Equity Captured over 20 Years:

    Cash Saved on Your $8k/mo: $4,870
    Amount Saved Over 20 Years: $1,168,800
    **Does not include a gain if this money were invested over 20 years.

    Equity Accrued in House Over 20 Years: $400,200
    ***Does not include any appreciation on the value of the property OR original down payment but prorates the pay down at .667.

    Total: $1,569,000

    This scenario would beat your “$1.4 million in the bank” by $169,000. You would also miss out on 20 years worth of mortgage interest deductions, the potential for SOME appreciation along with the potential to turn this into a rental property in the future.

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