What do you do now?
You’ve been making offers but it doesn’t seem like you are getting close to buying anything – with some listing agents you don’t even get a response!
The mainstream media makes it sound like prices are going up, but they don’t explain why. The underlying economic fundamentals make you nervous, and the government support can’t last forever, can it?
Thoughts to ponder:
Buy when everyone else isn’t – The competition will dwindle after November 1st because the clocks roll back an hour and people won’t be looking at houses after work, just mostly weekends. The holidays will be in full swing, and it’ll be too late to close by November 30th. After the frenzy we’ve had lately, buyers will want a break – expect fewer competitors through the end of the year.
Homebuyer tax credit – it won’t matter now if it gets extended or not. If it doesn’t, buyers will take a break. If it does, buyers will take a break anyway because they’ll figure that they’ll have at least six more months to take advantage of it. If it doesn’t get extended and the $8,000 is a big deal to you, get it from the seller.
Lousy inventory – There wasn’t much to buy in 4Q08, and unless the tsunami starts rolling soon, it’s going to be a very dry 4Q09. We’re tired of hearing it, but insider rumblings indicate that relief is on the way – there are too many properties in default for there not to be additional REOs coming.
Loan Mods to Fizzle Out – Six months from now loan mods will be a distant memory – they aren’t working, and the lenders are giving up. It used to be about 2:1 rato of NODs to NOTs, but the banks are throwing down, and today in San Diego County they are about even; 10,582 NODs outstanding, and 10,023 Notices of Trustee Sales.
Seasonality – There is seasonality in the sellers’ mindset. They are overly optimistic during the hotter spring selling season, and desperate around the holidays. Did you notice that the spring kick was a dud again? Sellers are their agents held out wondering if it would get better, but it never did – once they got more realistic towards the end of summer, properties started moving.
Consider Compromise – Keep waiting patiently for the right house, at the right price, but if you wanted to improve your chances, look a little harder at the fixers, and the short sales. Those are the ones holiday buyers will shy away from, and you stand a better chance of stealing.
Keep looking!!
$40,000.00 Ice Cream truck spotted yesterday! No kidding. It was a 2009 Dodge Sprinter(yeah the one with the Mercedes-Benz Turbo Diesel engine from the E-Class CDI). Cruising East on Mira Mesa Blvd by Qualcomm World and turned North onto the 5. This thing was decked out! I was driving so unlike Jim I could not shoot footage. They had all the basic ice cream offerings + Full Throttle, Red Bull, No Fear and other energy drink stickers on the side. This upscale guy probably has gate codes to access gated neighborhoods…
Thanks for the words of encouragement.
As with the Sellers…”There is Nothing Price Won’t Fix”
This is great advice and confirms my feelings. I’ve been looking all year and lost out on a couple of bids. It’s hard to be patient, but everything I read on this site and others is helpful. Thanks for everything.
Thanks! Gives me hope! I don’t mind looking at houses when it’s dark outside, and we don’t qualify for the new homebuyer’s credit anyway.
If the Fed stops buying mortgage-based securities in March ’10, as they’ve threatened to do, interest rates could shoot up 2-4 points as fatcat investors look for deals before buying them again. (Money from these transactions are what banks need to create new mortgages). Buyers would desert the market with 7-12% interest rates and prices would have to tumble, offering up new buying opportunities in mid-late 2010. This housing market has a long way to go before bottoming, so be patient if you can’t jump in yet, your time will come.
Even if interest rates go up it doesn’t necessarily follow that the cost of buying a house will go up. People base their home buying decisions on how much monthly payment they can afford (principle/interest). If the interest rates go up in this market, seems to me the prices will have to go down to compensate. It seems to me a lower price with a higher interest rate is beneficial to buyers. You get a bigger tax write off on the interest and if you pay down any principle early, you will be paying down a larger percentage of the principle than you would with a low interest rate/higher priced house….right??
Appreciate the uncharacteristic, but honest, tone from a Realtor. Thanks Jim.
Here’s something else to ponder. All of these stimuli have the aggregate effect of keeping home prices higher, and substantially higher, than they would be without the stimuli. Gov’t purchases of mortgages, $8K tax credit, 3% down FHA loans, excessively low interest rates, blah blah blah. While they do bolster home prices, 1) artificially high home prices only serve to indebt you more (if you you have to borrow 97% of the purchase price because home prices are too high for a 20% down payment, you still have to pay the 97% back!), and 2) at some point these stimuli must end. The government is not going to subsidize home sales forever, and when it ends, home prices will reflect the support being pulled.
If you understand points 1 and 2, then you understand that it’s kinda silly to buy a home now. Consider, for example, a home you would buy with a 5% mortgage. Home prices are in large part a reflection of what people can afford to pay on a monthly basis (so people can afford around twice as much purchase price with a 5% loan than with a 10% loan). Sounds like you should buy when interest rates are low, right? Wrong. Prices will predictably fall when interest rates inevitably rise since what people can afford each month doesn’t change. You’re better off buying when interest rates are high, since interest rates can always fall and you can refinance. Buying when interest rates are at all-time lows virtually assures that the home you bought can only go down in value. Not that a home is only an investment, but owing more than a home is worth can create a cage for you.
Ditto for all the other phenomena that are artificially inflating home prices….
‘The government is not going to subsidize home sales forever, and when it ends, home prices will reflect the support being pulled.
The game they seem to be playing is, they will keep subsidizing and forcing rates down until unemployment starts going down and/or inflation catches up with home prices.
Sure the government might cut off all the stimulus, not extend the tax credit, and allow rates to jump 2-4% all by next year. Pigs might also fly, but I wouldn’t bet money on it.
If you are waiting for interest rates to lower the price of homes, all signs point to it’s time to take a few years off IMHO.
Good info, thanks.
JtR, in your last point, why would buyers shy away from short sales?
Thanks!
Holiday buyers will shy away from short sales, because the intensity is lower. Who wants to deal with them if you don’t have to?
That’s why they could be an opportunity for those who don’t mind the uncertainty, the 2-6 month wait, and enduring the shenanigans employed by the sellers and agent.