Archive for March, 2017

5 Changes to Real Estate Markets That May Be on the Horizon

Thursday, March 16th, 2017

As many in the real estate industry anticipated, the mortgage interest rate has been raised, and predictions are that rates will go up again, possibly multiple times this year. What does that mean for home buyers, sellers and the real estate market in general?

1. Inventory will likely remain low. Since inventory in most markets is already low the rise in rates could keep it that way. That is because home sellers who were considering selling may choose to stay in their homes. Those who have low mortgage rates currently may decide not to make a  move if their new rates will be higher – it will all depend on numbers for many sellers. OR – there is always a chance that rising rates may cause some to sell quickly in order to prevent being locked into their homes for potentially years to come…it will remain to be seen.

2. People may be priced out of markets. If there are fewer homes on the market then home buyers will have a more difficult time finding homes due to high demand and low supply, which normally creates higher prices. As competition heats up, some buyers – likely many first time home buyers – will be priced out of the housing markets in many areas. Unless home builders supply the market with new inventory there could be a stall ahead.

3. Cash buyers will continue to play a role. In many markets, especially condo and townhome markets priced at $650,000 and under, I believe cash buyers will continue to be out in force snatching up these properties. Many first time buyers will have to contend with these cash buyers, and usually that is a losing game for the buyer who is getting a loan (since cash buyers do not require appraisals and can close more quickly; not having to rely on a lender to get the sale closed is a plus to many home sellers).

4. Rental market will continue to be saturated. If the above holds true then the already saturated rental market will continue to be busy – landlords will be able to make good money and raise rents because there will be plenty of renters needing homes who will pay the higher prices if current tenants cannot. This point correlates with the increase in cash buyers that we have seen lately in the “lower end” markets – many of them have been purchasing the lower priced properties for income potential, and it is a great time to make money in the rental market.

5. Real estate industry could see changes. With less inventory real estate brokers and agents could see a big change in the industry. Much like the exodus of sales people during the foreclosure crisis of 2008-2011, I predict many agents will again leave the business because they will not be able to survive in such a tight market. I also predict agent commissions will go down if there are fewer homes which sell faster.

The bottom line is that the real estate market in many areas, at least here in San Diego County and others in California, is still “hot,” but it is getting more difficult for people to get into it. This could affect future home ownership rates and the real estate industry as a whole.

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Home Buyers: Purchase Now or Wait Until Prices Drop?

Friday, March 10th, 2017

This seems to be the million dollar question right now as home buyers survey the lack of inventory and multiple offer situations present in many markets. A strong seller’s market and high prices make some buyers nervous. So is it better to buy now or wait?

There are a few very good reasons why now is the time to make that home purchase:

Interest rates are rising – We have already seen this happen and word is they will do so again this year, likely several times. This affects mortgage payments and down payments, so jumping in and securing that lower rate now could be smart. It is also important to note that some lenders are charging a lot more for interest rate lock extensions, so that is something to think about if you have a long escrow period or are pursuing a short sale.

Lack of inventory – Inventory in many markets is still very low – San Diego County included. Many buyers cannot find properties to purchase and when they do there are often multiple offers, especially in the $650,000 and under price range. Cash buyers are out in force as well in many lower range markets, making it even harder for first time home buyers. Being picky is getting more and more difficult – right now is a good time to be preapproved and ready to write an offer once you find a home that meets your criteria. See the home as soon as it comes on the market and submit your best offer right away.

Prices are not dropping as we head into the “busy season” – Lack of inventory is making it difficult as demand outpaces supply. Unless this changes we will not likely see price drops in the busy Spring and Summer months to come. The buyer who decides to wait this period out may find herself down the road with still low inventory and higher interest rates.

Here is an example: A house that currently sells for $766,000 with an interest rate of 4.75% and a 20% down payment would yield a payment of a little over $4000 a month. To get that same payment down the road with a home price drop to $727,000, assuming a higher 5.125% interest rate increase, the buyer would be losing $1585 over 3 years. So even if prices drop 5% and rates increase 3/8th  of a percent, the buyer who purchases with a lower rate now will be ahead in the long run.

Uncertainty – Worry about the future and economy is still prevalent among home buyers. Uncertainty about taxes and home write offs, as well as the expected rise in interest rates, make some buyers hesitate to make big purchases. The real estate market, like any market, is cyclical. If you are buying a home with a long term commitment then it is a great time to do so, before there are more rate hikes.

Before you decide whether it is best for you to purchase now or wait, it is important to discuss your scenario with you accountant or financial adviser, an experienced real estate agent in your area and your mortgage professional. Information is power.

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5 Things to Try When Buyer’s Appraisal Comes in Low

Friday, March 3rd, 2017

Home buyers these days have many hurdles to jump through in order to finally purchase a new home, from finding a home, to making an offer in possible multiple offer situations, to actually getting to closing without other issues. One such issue is appraisal – with inventory so low and prices climbing to meet demand it is not out of the ordinary for an appraisal to come in on the low side. But have no fear – there are a few things you can do to keep the sale moving along.

1. Renegotiate price/ compromise. If the home does not appraise there is always an opportunity to renegotiate price with the seller. Either the price can be negotiated down to the appraisal price, or the buyer and seller can agree on a compromise (for example, if the appraisal comes in $10,000 under contract price the parties can split the difference – buyer pays $5,000 more in cash and seller lowers the price by $5,000). However, if the seller had multiple offers there may be another buyer willing to pay that high price just to get into contract, so sometimes a seller will not renegotiate. It is always worth a try though, because if the other potential buyers are getting loans the seller could wind up in the same position.

2. Pay the difference with cash. Lenders are only concerned with the appraisal only because it affects the borrower’s loan-to-value ratio. The lender will only make a loan based on the contractual amount or appraised value.

3. Seller can carry a second loan. If you cannot lower the price and the buyer cannot pay cash over appraisal value, the seller can offer to carry a small second loan to make up the difference. The problem with this is that often the interest rate is higher than normal, but you can negotiate with the seller

4. Challenge the appraisal and ask for another to be ordered. Depending on the type of loan the buyer is obtaining this can be a possibility. If there is a good reason to challenge the appraisal with a conventional loan, say the appraiser was from out of the area or did not know the reasons why comparable properties sold for different prices (maybe your home is highly upgraded or has a better lot or view, etc.), then the appraisal can be challenged and you can ask for a second appraisal. Make sure that you provide comparables and an analysis of their sales to the new appraiser or to the lender – a job that the listing agent should have done (but even if s/he did there could still be other issues that did not bring in the appraisal value to the contract price). Talk to your agent and mortgage professional and figure out a plan that works best.

5. Cancel the sale. If there are no other options available the buyer has the right to cancel the sale without losing any deposits (unless otherwise agreed in the contract).

The bottom line is that there are potential solutions if your appraisal does not come in at contract value, so don’t panic. Make a plan with your agent and mortgage professional and see what you can do. Most of the time there will be a valid solution.

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