“We’re going to wait for prices to drop a little more.”

A prospective buyer client of mine emailed me yesterday to say they were going to “…wait until after the first of the year as they are expecting home prices to drop here in San Mateo and Burlingame.”

I have a funny story… well, not funny, but common.

I have a friend, we’ll call him George (because I love that name). About nine years ago George was a single guy, no kids, grad student and marketing director. He was making good money and it was progressively getting better and better. I (among many others, I’m sure) advised that he invest in real estate. Mind you, I wasn’t a Realtor then, I just believe in the investment of real estate – particularly in the Bay Area.

So George starts looking around, tries out a couple of different agents, condo after condo, looks and looks and never takes the plunge – because he’s waiting for home prices to drop. He eventually buys SEVEN YEARS later! Guess whether prices went up or down? I’ll give you the answer in a minute.

So George gets married, buys a single family home in Belmont for about $1M. I love him for waiting for me to get my license but here’s the truth of the matter: 

George was looking primarily at condos in Menlo Park, San Carlos and Belmont. Let’s look at San Carlos which is, on average, right in between Menlo Park and Belmont price-wise.

Here are the average sales prices for condos in San Carlos per year, provided by MLSListings:

1998   $352,638 (this is when George could have made his first purchase)

1999   $397,038

2000   $500,406

2001   $519,235

2002   $489,747 (oops, a small dip – that means you might not want to sell then, but you’re still ahead)

2003   $502,993

2004   $565,272

2005   $671,880 (this is when George would have sold to buy his single family home with his new wife)

George could have had an additional $320,000 to put down on that $1M home he purchased in ‘05. And there’s your answer. If George waited for prices to drop, in 2002, he still would have missed out on all the equity between 1998 and 2002, and we haven’t even touched on the tax benefits! We’ll talk about that next time.

Have a great day!

~ by aprsuite100 on April 9, 2008.