TO BUY OR NOT TO BUY -- THAT IS THE QUESTION! WHY NOT TO BUY REAL ESTATE NOW:

Howdy, Valued Reader!

Come on in and let me inject you with another addictive dose of my street-wise real estate news!

When smart Contrarians like Brett Arends (see WSJ article/Personal Finance "The Case For Buying a Home Right Now" begin to turn bullish on real estate it's time to pay attention. Needless to say I am the ultimate real estate Bull and love to see The Morphing of the Bears documented in the hallowed pages of the WSJ.

Having said that, now let me play Devil's Advocate to Brett Arends, the Devil's Advocate playing Devil's Advocate to himself in the above article.

Got that? Good. Assuming the opposition viewpoint has brought me much joy and knowledge in life. Walking in another's shoes and all that.... Some other shoes do at times seem a tad --- small -- I must admit. Just the other day I was walking around my office barefooted, well, because my own leather loafers were a bit tight.

First let me whip this self-professed Contrarian's softening bullish tendencies back in line with some of his own nasty facts (link to his nasty facts here).

I say: Do not buy real estate now.
Not yet, Maximus, not yet.

1) The home price-to-salary ratios are still well above 3 in many markets. Why not wait till they plummet further, maybe even to 2? In some markets no doubt they will. This would make a house worth buying at, say 2 or 2.5 times one's annual salary. And I say: take home pay. All that "gross" income they used to base mortgage payments on is just ghost money. Can't make a payment with gross income because it is not there. Net income is real money. The bank wants real money every month.

2) Admittedly, home prices have dropped like the proverbial shoe by 30 percent overall from their highest value levels in 2006. But is that it? No, I say: The other shoe has yet to drop, and it will. Take a look at the earlier home price climb from 2000 to 2003 and safely knock off another 30% of today's prices. That is today's prices, reduced by another 30%. Yep. Do the math.

3) There is ample evidence that bursting bubbles take several years to balance out, see our own country's earlier one in 1989 or Japan's. We may have a few more years of low-suds living before business as usual returns.

4) Why buy when rentals are plentiful and cheap, and good tenants are oh so desired by landlords stuck with said devalued properties they are unable to unload due to lack of equity. Just yesterday I had lunch -- read: a chilled bottle of Lipton's Diet White Tea -- with a 2006 equity millionaire three times over who wanted to divest himself of some of the real estate. First order of business was to cross off the list all the properties that had no equity or upside down equity and were not marketable. Can't sell if you have to bring cash to the closing table.

5) Another caveat for hopeful born-again property owners: The luster is worn off the wings of the glamorous real estate investment butterfly. Tenants are getting really good at ripping you off. The ex-real estate millionaire and I traded an hour's worth of war stories as to how ingenious professional ripoff tenants are finding ways to nail landlords in this sharky economy. Like the tenant that moved in with one month's rent, half a month's deposit, two mattresses, plastic storage bins and a card table and a small child in tow, telling him "You will not get another dime from me -- try to evict me if you want", and successfully squatting for a total of four months and leaving hundreds in utility bills to boot. She had a great job, nice car and dressed like a professional. Apparently a pro at ripping off landlords and ready to pack and move when absolutely necessary. After eviction court costs the net income is close to zilch. Landlording ain't what it used to be. Nothing lordly about it now.

6) How do you plan to maintain an American Pie lifestyle in your new home with three to four houses on your block vacant, boarded, regularly broken into and squatted in by assorted folks? One or two neighbors have not made their mortgage payments for the last year and freely discuss how much longer they think they have before they have to move. Your next door neighbor has just been served an eviction notice and you feel bad because you know the owner and like him, and you know the tenant and her situation too. And how do you plan to prop up your home's value which depends on other sales and the condition of the neighborhood? Where's that Pride of Home Ownership now? Up in crack pipe smoke.

Do I exaggerate? Sadly, no. I end this post affirming the worst: Homes are still priced too high, further devaluation is almost a certainty, bursting bubbles do not sudse up again within a paltry two-year time span and history tells us we are in the middle of a huge economic trough we have to trudge out of one tired step at a time. Lovely. Have I made a case for stepping back a tad and keeping your checkbook in your pocket just for now? I see you non-plussed, maybe nodding. Feel free to respond in a comment.

OK. Now prep yourself for tomorrow's blog: I will destroy my own case with a vengeance and deadly blows of logic to make you want to buy property from me by the six-pack. Make you want to write me bad checks just to tie up some homes NOW. Let me toast to this adventure with some more Lipton's White Diet tea. Cheers!

Yours Always,

"Blood-In-The-Streets"
Charlo Patterson, LCAM, CRM, M.Ed.