...is impossible!!! Don't try! Ok, you don't believe me. I understand. But at least let me explain, ok?
In the real estate industry we know that on average the public's opinion of the market has an 8 month lag, and relying on the media for updates is unreliable at best. Of course, the public isn't you, so I won't try and convince you otherwise.
But this assumes that there is such a thing as the "bottom" of the market, which we could mark as the exact day in which prices went from falling to rising. We could stick a pin on the low point of a "V" on a graph and all point to it and say, "Yup, everyone that bought on March 13, 2008 at 1:34pm got the absolute best deal possible, but those suckers on March 14 got taken for a ride."
In reality there's more of an extended time period when seller desperation peaks and presents an opportunity for buyers to take advantage. Remember, this isn't the stock market where transactions take a few seconds to complete and report, and exist somewhere in cyberspace. Real estate escrow often takes 30-45 days to complete, and localized communities experience independent trends that can differ widely from the surrounding area. To say that a market has "bottomed out" would only take into account the general market data of a large area. Even if we could point to a specific time that prices were the lowest everywhere on Earth, once we figured it out all the buyers would have to wait a minimum of a month to close a deal-- and the secret would be out by then!
I'll save my discussion about purchase price and interest rates for another post, but trust me when I say that .3% of an interest rate increase can easily offset a minor reduction in purchase price over the 7-11 years a person generally stays in their home.
MY PREDICTION: All the best deals in prime locations will be gobbled up by home buyers (see "Mini Bidding Wars" post) throughout the year. They will recognize that buying a home isn't all about price, and those people will have a tremendous amount of pride of ownership over the next decade. Rates are still at historic lows, but are expected rise, so those people may even be paying less per month than the "market timer" that got in too late.
MY ADVICE: Buy when the rates are low and the inventory is high. Make sure you can afford the payments and plan on living in the home for a minimum of 3-5 years. Get exactly what you want in a home and don't settle (but still recognize that no home is 100% perfect)! Your buyer's remorse will only last a week or two until you settle into your new home. In five years you won't even remember that you might have been able to save $5000 if you'd only waited three months longer to buy, and instead you'll laugh all the way to the bank because your house doubled in value.
Thursday, February 28, 2008
Sunday, February 24, 2008
Breaking News: Buyer Down Payments Increase
Kick us while we're down, why don'tcha!
Fannie Mae, a government sponsored enterprise involved in the secondary mortgage market, recently tagged San Diego (and many other areas of the nation) as a "declining market". Besides stating the obvious, what does this mean to you, me, and the market?
Buyers, even ones with excellent credit, will be hard pressed to find a loan. The days of 100% financing are gone, and across the board a minimum of 5% down payment will be required. That's an additional 5% on what you normally would have spent. If you qualified for a 100% program, you'll only get 95%. Investors, are you used to supplying a 10% down payment? Not anymore, you'll need at least 15%, possibly even 20%.
MY PREDICTION: The middle of the market ($350,000-700,000 or so) will see a drop in transactions, while the effect will be less for lower priced properties. Many first time home buyers can come up with the extra cash it takes for a down payment on a $175,000-225,000 condo. Some will do it by cashing out their 401k, others by draining their bank account. Previously, these buyers didn't buy because prices were so high that their monthly mortgage payments were more than their paycheck, and it had little to do with the down payment. Now, with prices lower the mortgage payment is manageable, even if they need to go "all in" with their chips. However, for buyers in the middle of the market the problem isn't making the mothly payments, it's that extra $20,000+ down payment money will be a deal killer. Not that they won't be able to afford it, they will just be less willing to zero out their bank account than buyers in the lower price range.
MY ADVICE: Be creative in your contract writing. Ask the seller to pay all buyer closing costs to minimize the out-of-pocket money a buyer needs. Use language like "recurring and nonrecurring closing costs" to ensure a buyer gets the full amount of the funds requested. Buyer's remember that sellers look at the net amount that they will receive and not the sales price, so figure out what you should offer without the closing costs, then adjust your purchase price upwards to offset the amount requested. Also, if you find yourself in a "mini bidding war" (see previous post) on a property with multiple offers, don't ask for closing cost assistance if you don't need it. When comparing two equal net offers, the buyer who needs less out-of-pocket assistance will look stronger and will get the property. Or, try increasing your deposit to 10% of the purchase price if you can afford it.
Fannie Mae, a government sponsored enterprise involved in the secondary mortgage market, recently tagged San Diego (and many other areas of the nation) as a "declining market". Besides stating the obvious, what does this mean to you, me, and the market?
Buyers, even ones with excellent credit, will be hard pressed to find a loan. The days of 100% financing are gone, and across the board a minimum of 5% down payment will be required. That's an additional 5% on what you normally would have spent. If you qualified for a 100% program, you'll only get 95%. Investors, are you used to supplying a 10% down payment? Not anymore, you'll need at least 15%, possibly even 20%.
MY PREDICTION: The middle of the market ($350,000-700,000 or so) will see a drop in transactions, while the effect will be less for lower priced properties. Many first time home buyers can come up with the extra cash it takes for a down payment on a $175,000-225,000 condo. Some will do it by cashing out their 401k, others by draining their bank account. Previously, these buyers didn't buy because prices were so high that their monthly mortgage payments were more than their paycheck, and it had little to do with the down payment. Now, with prices lower the mortgage payment is manageable, even if they need to go "all in" with their chips. However, for buyers in the middle of the market the problem isn't making the mothly payments, it's that extra $20,000+ down payment money will be a deal killer. Not that they won't be able to afford it, they will just be less willing to zero out their bank account than buyers in the lower price range.
MY ADVICE: Be creative in your contract writing. Ask the seller to pay all buyer closing costs to minimize the out-of-pocket money a buyer needs. Use language like "recurring and nonrecurring closing costs" to ensure a buyer gets the full amount of the funds requested. Buyer's remember that sellers look at the net amount that they will receive and not the sales price, so figure out what you should offer without the closing costs, then adjust your purchase price upwards to offset the amount requested. Also, if you find yourself in a "mini bidding war" (see previous post) on a property with multiple offers, don't ask for closing cost assistance if you don't need it. When comparing two equal net offers, the buyer who needs less out-of-pocket assistance will look stronger and will get the property. Or, try increasing your deposit to 10% of the purchase price if you can afford it.
Saturday, February 23, 2008
How far will the Market Drop? Consider this!
I've heard wildly different predictions about when the market will hit bottom. Some think it is here now, some think it will be years...but consider this:
Bank REOs (foreclosures) and Short Sales are now being listed at 2001-2002 prices in some instances (that’s 2-3 years before the 2004-2005 bubble), especially in the least expensive price range of the market around $130,000-180,000 . That's 6-7 years ago! "Regression to the mean" has already happened and in my opinion there’s been a slight over-correction. How much further can they slide- back to 1999?
Buyers, with a modest down payment, can now pay almost the same to own as they would to rent. Investors with a minimal cash investment can cash flow their condo rentals. That hasn't happened in San Diego for years!..and it won't continue for long.
MY PREDICTION: There are only so many unbelievable deals out there, and many more people looking for them than are available. The biblical flood of foreclosures predicted by many Chicken Littles may end up being more of a flash flood warning (with very heavy rains) as the numerous governmental interventions guard against overall economic recession.
MY ADVICE: Buy an REO or short sale now...hold for 4-5 years...sell...retire to Cancun and live like a sultan!
Bank REOs (foreclosures) and Short Sales are now being listed at 2001-2002 prices in some instances (that’s 2-3 years before the 2004-2005 bubble), especially in the least expensive price range of the market around $130,000-180,000 . That's 6-7 years ago! "Regression to the mean" has already happened and in my opinion there’s been a slight over-correction. How much further can they slide- back to 1999?
Buyers, with a modest down payment, can now pay almost the same to own as they would to rent. Investors with a minimal cash investment can cash flow their condo rentals. That hasn't happened in San Diego for years!..and it won't continue for long.
MY PREDICTION: There are only so many unbelievable deals out there, and many more people looking for them than are available. The biblical flood of foreclosures predicted by many Chicken Littles may end up being more of a flash flood warning (with very heavy rains) as the numerous governmental interventions guard against overall economic recession.
MY ADVICE: Buy an REO or short sale now...hold for 4-5 years...sell...retire to Cancun and live like a sultan!
Mini Bidding Wars!
I feel the need relay my recent experience. A short sale listing that I have was recently put on the market at a very competitive price and I literally had 5 offers within 2 days- all at or above list price. It actually started a mini bidding war! Many properties listed at the bottom of the respective market have similar results, with “multiple offers received, highest and best offer due on…” in the remarks section on the MLS. All the buyers out there seem to ignore 99% of the listings, but when a great deal comes on the market or lowers the price everyone submits an offer within a couple days.
Take from this what you will, but here’s MY PREDICTION: there are a lot of “investors” (i.e., people who were smart and sold their properties during the bubble of ’04-’05 and have been sitting on $100k waiting for the market to drop) that will buy up all the REOs throughout the year at great deals. Meanwhile the average seller’s home will sit on the market and the media will talk about how bad things still are, but transactions will be up as the foreclosures and short sales filter through the market, even though prices will remain “soft”. All that really means is that banks are willing to take less than the average seller and are pricing them out of the market. However, there are a limited amount of foreclosures and short sales on the market compared to buyers looking for "that one killer deal", and when a good one is listed there's a localized feeding frenzy.
MY ADVICE: if you're serious about buying, be ready to pounce at a moment's notice. That means staying in touch with your Realtor and monitoring the market every day. Also, have all your ducks in line- pre-approval letter, deposit amount available in the bank, purchase offer template created, etc.
Take from this what you will, but here’s MY PREDICTION: there are a lot of “investors” (i.e., people who were smart and sold their properties during the bubble of ’04-’05 and have been sitting on $100k waiting for the market to drop) that will buy up all the REOs throughout the year at great deals. Meanwhile the average seller’s home will sit on the market and the media will talk about how bad things still are, but transactions will be up as the foreclosures and short sales filter through the market, even though prices will remain “soft”. All that really means is that banks are willing to take less than the average seller and are pricing them out of the market. However, there are a limited amount of foreclosures and short sales on the market compared to buyers looking for "that one killer deal", and when a good one is listed there's a localized feeding frenzy.
MY ADVICE: if you're serious about buying, be ready to pounce at a moment's notice. That means staying in touch with your Realtor and monitoring the market every day. Also, have all your ducks in line- pre-approval letter, deposit amount available in the bank, purchase offer template created, etc.
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