Most buyers in this market are still on the sidelines waiting for prices to really hit bottom before they leap in and buy 'right!' They are sadly mistaken. They'll miss the boat totally. The bottom is marked by many different signs, and only one of which are home prices. In my own way of thinking, a bottom is marked by ample inventory, a plethora of opportunities, the ability to negotiate strongly on your own behalf in negotiations and extremely affordable terms in credit. A bottom is also market historically as a time when everyone is too fear struck to make a move. That is sort of where we are right now in many of our markets. There is a lot of fear, paralisis and apprehension. The only problem is that many buyers cannot see this. They cannot separate their emotions from the facts. They are looking at price solely as an indicator, and not the cost to acquire that property or the monthly carrying costs.
In the early 80's you could buy a home cheaply, but the monthly carrying costs were exorbitant. A low mortgage rate in the early 1980's was 15.5% A $70,000 loan would cost you $1500 a month in mortgage payment. When things hit a bottom in their way of thinking, rates are normally so much higher and then they cannot afford the lower prices. So it is never a good time for them to buy! There is always an excuse why they cannot pull the trigger. Their one blind side is that prices will be low and so will rates. Chances are that will not happen especially with all the government intervention into the financial markets. Sooner or later the government will have to increase the amount of personal savings. The only way to do that is raise interest rates.
"Life happens too fast for you ever to think about it. If you could just persuade people of this, but they insist on amassing information." ~Kurt Vonnegut, Jr.
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Jim - A very valid point , consumers forget that many factors affect the financial markets as they ebb and flow.
Good Morning Jim, you are up bright and early on the Rain.
When is the best time to buy?
Here in Canada we are bragging of the lowest interest rates in over 50 years. In our area Toronto, ON they are saying there is only 1 Buyer to every 8 Sellers. We have Government incentives.
What else does a Buyer need to make a great real estate buy.
How about a real estate agent that believes it is a good time to buy. If they would start believing it, they may be able to pass it on to Buyers.
When the rates work their way back up and the incentives are gone and Sellers get back in control... what will they say? I should've, I should've.
Al and Peggy
Jim...
In the early eighties I bout a $75,000 house. I put 20% down, financing $60,000. My payments were over $1,000 a month on a $60K loan.
You could buy a brand new car for $5,000 so a thousand bucks was a lot of money back then. Housing has NEVER been more affordable than it is today.
In many markets it seems like a bottom may have been reached. I as you don't think there will be a invitation in the mail saying please join the party, this is the bottom. What makes the market jump is when people wake up and realize the market has it own time table. I am seeing bidding on many properties in our market and what was a low, low deal is getting bids and moving a bit. Yes this is spring, and we are supposed to get bids, however it is good to see that kind of action. I am in Bergen County New Jersey, an affluent market, with a broad spectrum of prices. We have been declining for about three of years in general, it seems like we are finding support now in the market.
What is scary is that we are reversed in the rate value equation. Meaning low prices high rates. High prices low rates. We went from low to slightly high to lower.
Laura Gray (RE/MAX Realty Group) You are so right. There are many factors and price is just one of them.
Jim, I don't know anything about a bottom in Newfoundland. Here, the market has been pretty normal for most of the year. I do hope the bottom is here though for the neighbors to the south. The economies of the world are looking for some good news from the US. An upturn in Real Esate will be a good sign of recovery. Cheers.
Jim- "the grass is always greener" attitude will be the demise of many buyers. Shame on them for not jumping in. As for mortgage payment. I closed a loan last week on a $185,000 house that has a PITI of $1100 per month!
Al and Peggy Cunningham Voted Best Real Estate People- Brampton (RE/MAX Realty Services Inc.) All of the points you made are ery valid. There are a lot of opportnities out there, and the word should begoing out.
Richard Weisser Coweta Fayette Real Estate ERA United Realty You are so right. I am a firm believer that it boils down to the monthly carrying charges. With interest rates at 50 year loans for fixed rate mortgages this is an incredible opportunity to buy the right home.
Richard Stabile Bergen County New Homes Builder Realtor (REMAX real estate associates) Thank you Richard. There is an old axiom in real estate that says "Low rates = high prices and High rates = Low Prices!" Yes prices may move a little lower, but the cost to carry will be much greater.
Jim,
Lots of things are going right in the real estate market now for a buyer, low prices and rock-bottom mortgage rates being the most important. If now isn't an optimal time to turn in a strong offer, then when?
Esko Kiuru - Las Vegas NV Mortgage Consultant (Sinifox Financial) I know in my heart this is it.
Jim - my thoughts exactly! Thanks for your comment on my similar musings on my Blog.
Cheers!
David
Jim - I sometimes secretly hope for rate increases like in the 80's. But, only for a short term period. Maybe more people would get off the fence and finally get serious after seeing significant influxes. Although prices have fallen significantly, the rates have remained low and I think that has caused a huge lack of urgency.
David Stevens (Royal LePage Coast Capital Realty, Victoria BC Canada) Thanks. I thing all full time real estate agents are getting this.
Carol Culkin (Houlihan Lawrence Realty) You nailed it. There is a total lack of urgency.
The bottom seems to be in for the low priced homes in metro Atlanta. There are many more offers than 3 months ago for low end properties and the prices have increased slightly. Even at the mega auctions the prices on low end homes are up. Prices on high end homes are still declining slightly.
It has never been easier to pull the trigger on low priced homes as the rental cash flow provides excellent returns. Ironically there is little financing available for homes under $50k, and thus I need cash investors to keep going! Financing is difficult too for jumbo + loans and thus probably another reason high end homes are falling.
There do seem to be a lot of people on the fence. I know for refinances I talk with people each day who I have talked with for weeks. They are waiting to see how the rates are and I of course tell them that they can get worse any day now. No one can tell what the future has in store for sure, except to say that rates will go up one day again. Those sitting on the sideline will get stuck there sooner or later and kick themselves for not pulling the trigger earlier.
If I buy a house now and the rates go way up (which seems likely), I am instantly in negative equity...down payment evaporated and possibly frozen in the home. With a half a million people losing their job every month, and a tsunami of known Alt-A and option ARM reset/forclosures not reaching their peak until 2011, how can this possibly be even close to the bottom? I understand you guys need to convince yourselves of this to make a living, but as for me I am glad I am renting.
Phil - I am seeing the same thing. Not much over 500K is moving, and many buyers have no clue that they cannot obtain finacing for lower end homes...this inundates many offices with time wasters.
John Cannata - Mortgage Loan Consultant - Frisco Texas - Reliant Mortgage Ltd (Servicing Frisco, McKinney, Plano, Dallas, and more) Many of these are the same folks that cashed out their IRAs thinking it was a smart move, but not realizing the heavy tax consequences.
Charles- Thank you for your input. I agree there are troubled times ahead, but rates have to rise. All one has to do is look at the early 1980's Homes were very affordable price wise. However, the monthly payments at 15-21% were totally unaffordable. The note back then on a 70K home mortgage was over $1500 a month PITI.
Jim,
So true, so true.
I think a lot of buyers are maybe "overinformed" and may hear too many conflicting "ideas" that lead them astray.
It was like when I was expected my first child....I read too many books....I freaked myself out.
Not to say that they don't need to be informed..they do. But sometimes waiting for that "perfect" time, never comes!
Sheila Moran, SanAntonioSheila.com RE/MAX Access, Broker, At your service! (RE/MAX Access (Garden Ridge, San Antonio, New Braunfels)) You raised many great points. First of all buyers are very misinformed. They will tell you "Their friends told them...", they will also look for financing that does not exist anymore...100% finances, and they are thinking that DPA programs are still allowed. The answer is still none of the above. However when you tell them the facts, they do not believe you. They are reluctant to get qualified. Their loss. If they listened to persons in the business, they would see that rates are rising and now are at an national average of 5.25% for a 30 year fixed rate mortgage.
Jim - Even if the market dips a little bit, getting a low interest rate will last longer than the price dip. Values will come back ... sometime ... but these low interest rates ...? One thing many buyers forget when they hesitate to pull the trigger - the enjoyment of home ownership. They control their destiny when they buy and own. They can paint it the way they like it, landscape it to their own taste, build extra things, i.e.- a gazebo or garden, and it is all theirs. I call it the emotional return on the investment - it is a major component in real estate that gets overlooked in times like this by price mongers. Price is always important, but it isn't the only important aspect of home ownership.
Jim Valentine (RE/MAX Realty Affiliates) You are so right, it will last 30 years! These interest rates have not been seen in over 50 years. You are right, it is about more than price. It is priceless!
Jim: Right you are!
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Jim this post hits the nail exactly on the head! The bottom of the market is when people are too fear struck too move. It is unfortunate in my market the opportunities are abounding but investors (and Foreign investors) or the only ones taking advantage of it....
Mirela Monte, Your Myrtle Beach Real Estate Connection Thank you so much Mirela!
Kathleen Frawley Your South County Connection (Keller Williams) Foreign investors may be the key as buyers in this market as the dollar devalues to move in and buy these great bargains before anyone realizes what happened!