Nov
4
Are You A Buyer Sitting On The Fence?
Written by: rebecca and filed Under Blog, Issaquah, Issaquah Highlands, Lending, Real Estate |
Many buyers have been pondering the decision of whether or not to buy a home over the past few months. It’s no wonder - it has been a scary market out there. With so much news focused on the turmoil caused by the increase in mortgage defaults, foreclosures and mortgage houses closing their doors, it seems like it is all doom and gloom. The reality though, is that it is not doom and gloom at all. In my opinion, if buyers continue to sit on the fence, they may miss out on some opportunities that currently exist in the market.
Interest rates are still historically low. Going back the last 30 years, a 30 year fixed still is averaging around 9.4% or about 3.4% higher than where we are sitting at today. What has changed is the amount of documentation needed to get those loans. With the right loan officer you can be guided through the increased documentation requirements.
Along with the historically low rates, you can still get FHA assistance with down payments. While, most down payment assistance programs were shut down on October 31, 2007, non-profit group, Nehemiah, received a six month extension.
If low interest rates and down payment assistance programs aren’t opportunity enough, how does being in a very strong position at the negotiating table sound?While most sellers aren’t considering ridiculously low offers, they are considering more concessions than they have in the past. Sellers are making these concessions because there is currently a surplus of inventory available for buyers to choose from. In fact some buyers are so confident in their negotiating position, that they made five offers at the same time just to see which offer “stuck”. In that situation, it was the seller that was willing to give the most that “won”. That said, many buyers are in a good position to save thousands of dollars on the purchase price or their closing costs (by having the seller pay them). This can be very helpful as it can reduce your mortgage and/or conserves cash, reserving extra monies for important things like furnishing a new home.
So if you have been thinking about taking the plunge and want to take advantage of the wonderful opportunities currently available to buyers, my suggestion is to stop sitting on the fence and start exploring some of the opportunities that exist.
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17 Responses to “Are You A Buyer Sitting On The Fence?”
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“Interest rates are still historically low.”
WRONG. Although interest rates are low, so is the inflation. If you have an interest rate of 12% but inflation is 10%, your real interest rate is 2%. However, if you have an interest rate of 6% and an inflation of 3%, your real interest rates is 3%. So right now is NOT the time to buy.
“how does being in a very strong position at the negotiating table sound”
Most sellers are still stubbornly clinging to the notion that 15% appreciation is the norm. Even a housing price inflation is 10% is way high when inflation is just 3%. If houses appreciated that fast, you would not need to work - all you would need to do is buy several houses and you have money falling from the sky. That does not happen in real life. The sellers need to get real. In other areas in the US, the sellers are getting real, real fast. In Seattle, because of the “it can’t happen here” mentality, all sellers believe that Spring ‘08 will be different and so they may mark down the prices 5% but not more. Let’s see what Spring ‘08 holds. Note: After Citigroup’s CEO resigned one prominent mutual fund manager claimed that the subprime mortgage is a trillion dollar issue. So there is a lot more credit pain ahead. Bernanke may reduce the interest rates, but that would be delaying the inevitable - there has to be a correction.
So let’s take an example in history to do the math.
1983 - 1984
Mortgage Rate Avg ~13.5%
Inflation Rate ~4.0%
Real Interest Rate (according to the logic above) ~9.5%
2006-2007
Mortgage Rate Avg ~6.5%
Inflation Rate ~4.0%
Real Interest Rate (according to the logic above) ~2.5%
Do I have that right?
For historical mortgage data I used the stats compiled by HSH (http://www.hsh.com/mtghst.html) and for the inflation rates I used the BLS CPI data that they publish.
Official inflation rates for 2006-2007 was 4%??? And Bernanke is still cutting rates??
Where did you get this information from?
Look at the inflation chart at http://www.inflationdata.com/Inflation/images/charts/Articles/Decade_inflation_chart.htm
The average inflation from 2000-2006 was 2.85%.
And, the 13.5% interest rate that you showed for 1983-1984 is misleading. You are not telling the full story. In the early 1980s, the US was caught in staglation - high inflation with lacklustre economic growth. Paul Vocker, the Fed chairman then took a tough decision (which Bernanke may have to take some day if he wants to save the US economy) to raise the interest rate through the roof to break the back of inflation. That led to a painful recession but brought inflation down. After that, there was a steady decline in inflation and hence the interest rates too.
All buyrers have to look at their own situations. The perfect time to buy is when you look at historical numbers. Some sellers will be taking their homes off the market after Thanksgiving. Watch for what is available after Thanksgiving these are the seller that need to do something. Go ahead and make an offer that you think is fair and see what happens. If you wait until after the new year sellers are feeling good about the “new” market and will hold there prices.
The next window is the May-June period.
“If buyers continue to sit on the fence, they may miss out on some opportunities that currently exist in the market”.
Wrong again!! If enough buyers continue to sit on the fence, prices will come down due to a scarcity of buyers, and buyers will get much better deals.
On Wall Street, there’s a saying - don’t catch a falling knife. Housing is the knife (or rather a sword) that is falling now. If you want to catch it now - well, all the best to you coz you will need all your luck.
Also note that housing stalled even though the economy was doing good, simply because it was *NOT* driven by fundamentals such as rising wages/rents etc but was driven by greed, lax lending standards, cheap money etc. Imagine what would happen to housing if the economy would go into a recession. The deflation of housing bubble caused by a record number of foreclosures and unrealistic prices causes a recession which causes job losses and more foreclosures which causes more pain in the housing market. The housing market would then be caught in a vicious circle - like the circle that caused prices to shoot up in the first place. So anyway you look at it, buying now would be foolhardy.
To the buyers: Buy if you must, and if you want to live in the house for at least 7-8 years or maybe 10 years. Don’t fall in for 5/1, 7/1 I/O ARM loans and don’t listen to lenders who tell you that on average people change their houses every 7 years so its fine to go with a 7/1 I/O ARM or something exotic. Since you are buying at the peak of a bubble, make sure that you have your finances in order and DO NOT buy more house than you can afford even if your “friendly” buyer agent tries to convince you to agree to unrealistic prices and put in an extra 80K-100K to buy your “dream house”. Remember, when you cannot afford your dream, it will become a nightmare.
Goldeneye,
Where did i get my data? The BLS. You know, that little government agency that calculates little things like CPI and GDP which are the two major metrics used to calculate Inflation. If you looked at the data I provided, you would see that I was specific what data points I used to calculate Inflation. You are correct that for the time span of 2000 - 2006, inflation was 2.83% per year on average.
As for the interest rate, why it is misleading? Am I to rely on your single data points that you use to prove your point? Stats are stats and anyone can get numbers to say what they want.
As for whether or not it is a good time to buy, I don’t think anyone said it was or it wasn’t. If you read the post, it merely states that there are some good opportunities right now. Interest rates ARE low. Housing inventories are rising which is putting pressure on sellers to concede financially. And there are some home buying assistance programs sponsored by the FHA and HUD that have been extended. No one is an oracle and claiming this is a peak of a bubble, which I find that statement hysterical coming from someone who sounds like a “bubble” head, seems odd when prices have been dropping for a few months now. So if now is the peak (which you said earlier) I am interested in how you define peak because I define it as the highest point something can reach.
Whether or not a person decides to take advantage of those opportunities is up to them. Some won’t and that is fine for them. Some will and that will be fine for them.
And if you are just hear to promote scare tactics and bash Realtors and Mortgage Brokers, you have come to the wrong place.
I think it is unrealistic for anyone to tell someone when it is a good time for them to buy or sell their home. It is a personal choice.
Buying a home when it fits into the goals and budgets set by the buyer is all the matters. Look at the many buyers that missed the boat “not” buying because someone else said that they were not at the bottom or there will be a change of winds and wait. Many people were purchased out of the market because they waited.
Although I don’t agree with many of the lending practices over the last several years and many lenders did not have the best intentions for their clients when putting them into risky home purchases, the buyer also needs to know that there are many lenders who counsel them and guide them into low risk lending.
Anytime you purchase a home or invest your money into something other than your mattress you are taking a risk. The question then comes down to what type of risk are you willing to make? Are you comfortable with the possibilities that there will be times when the markets drives your investments up and can you afford it if the market takes a dip? There is no such thing as FREE money and you need to know what your comfort level is with risk. Buying a home is an INVESTMENT. You’re first buying for shelter, you then have the benefit of a tax deduction and lastly you are also hoping that with time it will appreciate.
Don’t be afraid to buy if it is the right time for you. If you are unsure, seek advice from a qualified lending professional that has been through the ups and downs of our economy, instead of listening to the nay sayers.
Hi,
“I think it is unrealistic for anyone to tell someone when it is a good time for them to buy or sell their home. It is a personal choice.”
It is, is it not? Then why does every realtor claim “It’s always a good time to buy or sell”? In fact this was the email signature of several realtors whom I have interacted with in the past.
“There is no such thing as FREE money and you need to know what your comfort level is with risk. Buying a home is an INVESTMENT. You’re first buying for shelter, you then have the benefit of a tax deduction and lastly you are also hoping that with time it will appreciate”.
Agreed. Although note that the tax benefits will dry out after the first 5-7 years when you have paid the interest on the house. That’s the reason you should be careful about going for 5/1, 7/1 ARMs with extremely low teaser rates. When the rates reset after 7 years, you will find you get less of a tax benefit and your payment on the loan doubles or triples (as the loan may be). And regarding the house appreciation, houses will eventually appreciate (unless you are in Japan where they have been falling for 16 years) . But housing busts typically take 4-5 years to get over before prices start rising again. This housing bust is the *biggest* ever.
“Buying a home when it fits into the goals and budgets set by the buyer is all the matters.”
That is exactly what I am saying. Buy when your finances are in line. Do NOT buy because your “friendly” realtor is telling you that if you don’t buy now you will be priced out.
“Many people were purchased out of the market because they waited.”
Yes, and their time will come. BTW: This is the same tactic used by realtors that I am arguing against - (”Buy it now before its too late”). This whole article of yours has this subtle message- “If buyers sit on the fence, they may miss out some opportunities that currently exist”.
Did you read CNN today? It listed Seattle as one of the top 25 markets “poised to fall” - yes you heard it right. Here’s the link: http://money.cnn.com/galleries/2007/fortune/0711/gallery.real_estate.fortune/22.html.
They are predicting a 19.5% drop in Seattle over the next 5 years. Also the October MLS numbers for Seattle are in. Here are the results:
-Median prices (overall) in Seattle decreased by 5.7%.
- Median prices for SFH in Seattle did not increase or decrease.
- Median *home* price on the Eastside decreased 4.1%.
The writing is on the wall. Where it goes from here is anybody’s guess. But the probability of prices going up are slim to nil. All signs point to a downturn here in Seattle and (I hope not) a recession. Ben Bernanke today remarked that he believes that the economy will slow into 2008 *as the US housing slump intensifies*. In other words, this is just the start…
So buyers, did you see what happened when you were sitting on the fence? You started getting better deals. Did you see what happened when you rushed into the home ownership mania from 2004-2006? You bought overpriced dumpsters that you will find it tough dumping again. Patience is a virtue and “Fools rush in where angels fear to tread”. Be an angel now.
“Although I don’t agree with many of the lending practices over the last several years and many lenders did not have the best intentions for their clients when putting them into risky home purchases, the buyer also needs to know that there are many lenders who counsel them and guide them into low risk lending.”
Show me one good lender who does not try to rip you off. If you know such a person, please share it with us, coz I have not met *any*.
The thing buyers need to realize is that the way things are, everybody in a real estate deal benefits *from the buyer*. The more the buyer pays, the better it is for everyone involved (except the buyer of course). If a buyer overpays, the buyer’s agent gets more money, the seller gets more and the seller’s agent gets more. Lenders get a percentage of the loan that they sold to the buyer. The lender gets a *bigger percentage* if he is able to sell a bad loan to the buyer. If the buyer was buying a lesser valued item, it’s still fine since if the buyer makes a mistake it won’t cost him much. But buying a house is the biggest investment that someone will make in their whole lives. If that decision goes wrong, you could be in trouble for years to come, if not your whole life. (Take Japan for example where people bought 100- yr mortgage loans in 1989 to buy amazingly overprices houses – today the houses are worth 60-90% less than what they were bought for and their three generations have to suffer the mortgage). Buyers agents should be helping the buyers find good deals for their money – not arm twist them into buying overpriced crap by playing subtle mind games. Unfortunately, the conflict of interests inherent between a buyer and buyer’s agent prevent this from happening. On paper, the buyer’s agent represents the buyer. In spirit, it is the seller that is being represented.
Wow, what bitter pill did you take? Did someone twist your arm in purchasing something you are unhappy about? If you are a current homeowner, how long have you owned your home? Are you currently in a position that you owe more than your home is worth?
So where do we begin…….
Adjustable Rate Mortgages are not bad mortgages depending your needs for your purchase. Your lender can help you learn the UPS and DOWNS of an Adjustable. There are many reasons to take this type of product and again it becomes personal choice. I personally have had an adjustable for 5 years. It was the perfect product for my needs at that time. I have now moved over to a 30 yr fixed, but I know the pitfalls and the tremendous gains of taking out an adjustable. Please remember, it is a owners needs that are determined first and foremost.
The “Friendly Realtor” bit is a bit much to take. In the United States you have the ability of freedom of choice. There is no person out there who purchases a home without wanting to buy it. There are NO forced buyers anywhere in the United States.
“**Show me one good lender who does not try to rip you off. If you know such a person, please share it with us, coz I have not met *any*.”
You obviously have not met me! I have been in the industry for over 20 years. I am ethical,knowledgeable and find the best deals for my clients. I have ridden many economic moments out and have been able to work with wonderful clients who return time and time again because they trust me and know they will be well taken care of. I lend all over this nation and many who cross outside the state of Washington have me provide their mortgages for them because of our relationship and savings. So please feel free to call me anytime if you need a mortgage with good rates/fees, knowledge and ethics. By the way, I’m sure that I can find many of my clients to support the above FACTS! I have never had an unhappy client, I do not have any clients who are having financial issues with the home or mortgage they have obtain working with me AND I have had several clients thank me for not putting them into certain products or Home Equity Line of Credits.
One last thing, lending is a job and we are entitled to be paid. I again do not agree with all lending practices out there, but if we do a great job like you and your job, a pay check is always appreciated. I’m sure you get paid at your current position right?
I must ask politely to please get off the bashing of agents here. If you’ve had a bad experience I am very sorry that it happened to you. However, there are many credible people like Rebecca that look out for their client first and foremost. They spend time with their client learning their needs and desires. They take time to show them the upsides of one home vs. another. They help the client to determine the best offer and present “exactly” what the client wants. No arm twisting here.
It is ok for you to give your facts to support your negative attitude, but when it becomes personal I would like you to consider that this is a friendly site wanting to help people learn when it is a good time to buy or sell for them. You are not involved in that their choice and your personal conflicts with an unfortunate experience shouldn’t taint someone else.
I like reading your information and I believe you have some vaild opinions. I look forward to seeing more of you on hopefully a more optimistic note.
Wishing you the best.
Hi Barb,
I was not singling out any realtor in particular. Mine was just a statement made to the real estate industry in general. I forgot to add to my earlier posts about how WaMU arm-twisted RE appraisers to inflate home prices by more than 10%. No wonder house prices rose so fast in the last 3 years. Anyway, here’s a sober thought:
“Have we seen the worst of the mortgage crisis?”
============================================
http://news.yahoo.com/s/ap/20071124/ap_on_bi_ge/doomsday_scenario
:
========
“The subprime wreckage could dwarf the nation’s last big banking crisis — the failure of more than 1,000 savings and loans in the 1980s. The biggest difference is that problems with S&Ls were largely contained, and the government was able to rescue them through a $125 billion bailout.
But this situation is far more widespread, which some experts say makes it more difficult to rein in.
We’ve never been in this situation before.”
==========================================
CEOs of Wells Fargo and PIMCO have gone on record saying that this housing downturn is worse since the Great Depression of the 1930s…
Is it prudent to buy a house now? I don’t know, but I think the answer is “no”.
It looks like you have been bit by a bubble baby. They will ruin your blog.
“bubble baby”? I think the information exchanged is interesting and reflective of the mood around the country. However, there are many buyers out there that this is giving them such a good opportunity to buy again…….Wow! I must say that for me I am more excited knowing that I can purchase something that is affordable, have the time to make the decision and know that I will be able to get the deal that “I want”!
My friends and I who are in our late 20’s feel that our jobs and income is valid, we don’t have ties some of don’t have children and it feels right. We are not like our parents and think that buying a home is just for making money. We want tax deductions and a place to put our heads on our pillows at the end of the day.
I say buy away fellow 20 & 30 year olds!
I was reading the CNNFN this morning and found this information interesting but also it made sense. They mentioned that the Pacific NW still going strong particularly Wenatchee. Also they mentioned to watch your local industrties for signs of recession. If your local industries are going strong, hiring and such, the supply for housing will be inspired by that alone. Maybe this is why our region has been able to push through the housing crunch so far. Boeing and Microsoft still strong along with many other big business locally as well. I thought I would share this today.
Real Estate: Last of the red-hot markets
Why is housing in some cities still booming? The answers may help you navigate your own market.
By Joe Light, Money Magazine staff reporter
November 30 2007: 8:24 AM EST
Larry,
Thanks for checking out the site.
I would agree that it looks like some people that are on the “Real Estate Bubble” bandwagon are trying to get my goat. I am actually okay with that. I am confident that I can hold my own against them and when it really comes down to it, I am in this business to help my clients regardless of which way the market is going.
It takes a true professional to be able to do that and I think that the “Bubble” people forget that important little aspect of real estate. People will always need professional advice and help navigating such a big transaction. This need is only magnified when a market is challenging.
Real estate is so hyper-local that the claims the “Bubble” people make just don’t always apply on a city or community level. There are still plenty of deals out there right now as well as places where sellers can command premiums for their homes. It just takes more work to find them.
So let them continue to put fear and confusion into people’s minds. I will be there to help them sort out the fact from the fiction and get them the best deals possible.
“There are still plenty of deals out there right now”
Rebecca, how do you define “deals”? If King County prices go down 20% from here (and that is absolutely within the realm of possibility), then arguably not a single purchase made between now and then will be a “deal”.
I’m not commenting on your business personally, but I have seen with my own eyes the behavior that one of the other commenters mentioned. My friend’s wife inquired online about a property, and the friendly ZipRealty person emailed back to say:
“Between now and the Christmas holiday season when, traditionally, the market slows down, is a great time to find that perfect home, or to sell your home.”
Really? A great time to buy AND to sell? Sounds like that’s from the perspective of the agent.
I should start by qualifying that the term “deal” is relative and differs from person to person. That said, the problem with stating that no purchase between now and some unknown date in the future will be a deal (when a potential 20% decrease in property values may happen) is: that thought is just as extreme as the one buyers had 2-3 years ago when any property they bought was sure to appreciate at least 20% a year. Can you honestly say you don’t agree?
To specifically answer the question though, there are micro segments of King county that have seen appreciation, and in my opinion will continue to appreciate because of relative property values in surrounding areas. Take for example certain areas just north of downtown Bellevue. Within a 3 mile radius, comparable property values can vary by as much as 50% to 100%. Sure, some of the properties that I would consider deals might need a coat of paint or new flooring, but for a little money, you can make these units practically identical, save physical address. Even if the property values on the high end of the spectrum fall 30% - 40%, these properties I think are deals, still will be deals.
Unlike other areas of the country that don’t have a diverse economic base, the Puget Sound area is very economically diverse and the job market has stayed strong and even continues to grow. This is just one reason I don’t buy into the whole “bubble” theory. Certainly there are peaks and valleys in real estate which can be made more prominent by the type of loan product one has - but over all I am a believer in real estate and always have been.
I do think for buyers out there that are considering a home purchase, that inventory is strong and that there are lots of options. If you are smart with the size and type of loan you take out, you (or your realtor) are a savvy negotiator and you make a smart decision about what and where you buy - even if you had to sell that property in two years you could be in an equal position to renting especially when you calculate in the tax benefits of owning a home.
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