Bubble Sitters Wait for Home Prices to Plummet, Hope for Best Possible Deal

There’s little debate at this point that the Florida housing market is undergoing a slow period. Numerous potential buyers are resisting the urge to take out a Florida home loan, waiting for sellers to get desperate and for prices to fall further and further.

It’s a common line of thinking around the country - but is it a sound one? These “bubble sitters” are either cashing out by selling their homes and renting, figuring they’ll return to the market after prices have fallen; or include those who have never owned a home and are waiting to take make an offer until the market falls even more in their favor.

Will pricing patience pay off?

Bubble sitting has contributed to softening in housing markets, especially in new homes. It explains why demand for Florida mortgage loans has been down in many cities. Builders have reported slowing sales, as they offer numerous incentives, rebates and discounts in order to move inventory.

“With many potential buyers on the sidelines right now, we believe there is growing pent-up demand that will come into the market once buyer sentiment improves,” said CEO Robert Toll of Toll Brothers.

He does not, however, think bubble sitting works. “It’s very hard to pick a bottom,” he said.

Bubble sitters might argue, however, that it has worked for new home buyers this year. They are, after all, receiving discounts and incentives that were nearly non-existent last year. Dean Baker, an economist and co-director of the Center for Economic and Policy Research, is a bubble sitter himself, having sold his home a couple of years ago.

“It is a very bad time to buy. Prices are heading down,” he said. They’ll have to be in the near future, as sellers realize their lising prices are not realistic based on the current market conditions.

Jim Gillespie, CEO of Coldwell Banker, doesn’t support those that wait too long for pricing tides to turn their way. He says “if the Feds stop raising rates, [Florida mortgages] will start to go down and prices will recover.”

Factors to consider before making a move

But Bernice Ross, CEO of realestatecoach.com, says that there’s a lot of downward pressure on home prices. Foreclosures and delinquencies have risen and, in many of the hottest markets, interest-only Florida mortgage loans will be adjusting upwards, making it difficult for some owners to keep up with monthly payments.

Consequently, more buying opportunities will open up, but more professional investors will be drawn into the mix. These, she says, are “not emotional buyers. They’re crunching numbers, looking for cash flow.”

John Bredemeyer, speaking for the Appraisal Institute, an association of professional real estate appraisers, says anyone considering bubble sitting should take three basic factors into account:

1. Where the market is heading: “You need to know what your market is doing.” A professional appraiser can help with this, but don’t even consider a Florida home mortgage loan until you have an idea of local price trends.

2. What your reason is for buying: Bredemeyer says cashing out and buying later is usually not a good idea - the costs of selling and repurchasing is going to kill you, even if prices do fall.

For those first-time home buyers, though, it can make sense to rent for a year, according to Bredemeyer. “If you don’t know the area, you can learn more about it and find out where you really want to live.” Falling prices make the advantages of that strategy even more compelling.

3. What your time horizon is: The value of bubble sitting also depends on how long you intend to live in a house. If you’re planning to be there for five years or more, it make sense to buy as soon as possible. Time smoothes out any price bumps - over long periods prices nearly always appreciate - and the tax advantages may help make it cheaper to buy than rent.

It’s a different story for the short term. Those taking out a Florida home loan just to turn around and find another buyer in a couple years may not see the return on their investment they had hoped for.