Former homeowners ponder when to re-enter real estate market

(Anthony Freda For The Washington Post)
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By Tomoeh Murakami Tse
Special to The Washington Post
Sunday, July 25, 2010

N ew york -- In hindsight, Scott Feldman's decision to sell his first home in late 2006 could have been a case study in a textbook called "How to Time the Real Estate Market."

Feldman, who works at a private equity firm, sold his two-bedroom apartment on Manhattan's Upper East Side for $879,000, about 40 percent more than what he paid for it in 2003.

But whether Feldman's return to homeownership proves as financially savvy remains to be seen. After weathering the recession in a rental unit, he bought a five-bedroom house in a New Jersey suburb last spring for 30 percent below the original asking price.

"We probably overpaid for it -- but we're happy here," Feldman said, adding that he and his wife's decision to buy had less to do with calling a market bottom than settling into a community their two young children, nearing school age, could grow up in.

Indeed, while some financially sophisticated professionals who foresaw the housing crisis -- and acted on it -- have re-entered the housing market, others remain renters today. With the fledgling housing-market recovery suddenly deteriorating, these holdouts are scrutinizing the increasingly uncertain economy and doing old-fashioned, shoe-leather research on their local real estate markets as they weigh the timing of their return to homeownership.

Of course, no one is expecting the kind of double-digit annual appreciation that created the illusion of homes as red-hot investments and bottomless cash machines. But as other assets recover from the lows of the financial crisis -- the Standard & Poor's 500-stock index is up 65 percent from March 2009, for example -- and home sales and even prices inch up in some markets, more investors sitting on cash are starting to wonder: Do I dare put my money in real estate?

Those who have bought say they largely wanted to take advantage of record-low interest rates and a recently expired tax credit for homeowners. They also note that prices had dropped to a point where the emotional benefits of homeownership outweighed potential losses from further price declines.

Meanwhile, the holdouts cite a number of reasons for staying put -- cheap rents and still-declining home prices, tight credit and expiration of a popular tax credit to spur home sales, lingering unemployment and rising uncertainty about the economy.

"You have to be patient," said Mark Kiesel, global head of the corporate bond portfolio management group at Pimco. Kiesel has been renting since selling his house in 2006 and recently renewed his lease for another 18 months. "You have to stick to the fundamentals. There are more sellers than buyers -- it's that simple."

Ben and Julie Feldman sold their 900-square-foot condominium in Dupont Circle in fall 2005. This spring, they went house hunting but concluded that prices were still too high.

"Given the level of uncertainty about short- and medium-term economic performance, it really doesn't make sense to jump in unless you have a five-to-10-year horizon," said Ben Feldman, 44, an independent consultant and a renter in Capitol Hill.

Home prices have proved volatile. After a steady decline from mid-2006, national average home prices climbed more than 6 percent in mid-2009, but they have dipped since then. Overall, prices are off by about a third from peak levels through March of this year. That follows the huge run-up in prices -- a 90 percent appreciation -- from the beginning of 2000 to their peak in 2006, according to the S&P/Case-Shiller home price index.

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