Mar

10

Long Island Real Estate: Pricing Forecast

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The Long Island Real Estate Market is going to be going through some changes over the next few months, but like all other market predictions, that’s all they are, predictions. I have always been looking at the supply and demand of the Long Island market because the truth lies within those numbers. Sales vs. available homes is what drives our price.

However, in this article, I’m going to includes several other points of interest that will include information on mortgage rates, foreclosures and “the real estate bubble”.

To bring all the information together, I’m including a video where I review some of this information with you. Specifically, I’d like to start with the “real estate bubble”. You’ve definitely heard the saying, “What goes up, must come down.” This video is going to focus on the bubble vs. the norm and it’s powerful information.

The Real Estate Bubble

So after watching this video, you might be wondering what exactly is going to drag prices down.

Supply Vs. Demand

This chart continues to bother me because it doesn’t seem to change very much.

There are slight differences, but overall, things are still basically the same when it comes to supply and demand. So the main drag on Long Island home prices is inventory. There is simply too much supply and not enough demand.

So someone could determine that this is going to change in 2012 or during this Spring. I do believe the demand is definitely going to increase over the Spring months due to low prices and mortgage rates.

Mortgage Rates

This brings me to mortgage rates. Where will they be five months from now? What’s interesting to look at is the effect the stimulus package had on the mortgage rates.

There’s no doubt that mortgage rates were impacted positively by stimulus packages and home buyer credits. Now if you’ve paid attention to quantitative easing by the Fed, you’ll know that the purchasing of Treasuries by the Fed will end in June, 2011. This is a main component of low mortgage rates.

If there are no viable buyers for Treasury notes after the Federal Reserve stops purchasing these notes, this could very possibly send mortgage rates higher, literally overnight.

Now as mortgage rates go up, this will impact how much buyers can afford to borrow.

For home sellers, this information is vital to keeping your “eye on the ball”. If your intention is to sell your home for the most money you can in 2011, there is no doubt in my opinion, that listing your home now is better than waiting.

Foreclosures

Are foreclosures going to be a problem for the Long Island real estate market in 2011? The answer is yes. How will foreclosures impact prices? The same way they have over the last two years. Increases in short sales and bank foreclosures to the market continue to drag down prices because they sell for a lot less than your average “normal sale”. When a foreclosure or short sale closes, that sale number becomes part of what appraisers look at when they determine the value of a home.

If there’s one thing the graph above demonstrates, it’s that we have a long way towards getting through the foreclosure mess. Notice the inventory building up to 2008 as it rises, we are now on the way down and if it took 4 years to get to the top, I’d say it’s going to take nearly the same amount of time to work out of it. That’s puts us at 2014 to be basically through the foreclosure mess.

The Bottom Line

The pricing forecast for the Long Island Real Estate market is much like the rest of the country. Our greatest challenge is getting homes sold vs. homes that are for sale. Supply is still very high and demand, while improving, is still very low. One could look at the supply vs. demand challenge and adjust it for the season (we had a rough winter that may have hindered sales), but with mortgage rates still at historic lows and prices down nearly 40%, I don’t care what snow storms hit our area in February, home buyers should have been out in full force – buying!

The fact that sales were much lower than current supply, only makes me wonder what buyers are thinking. I know I’ve spoken with numerous buyers and many have told me they’re waiting to save more money or for prices to drop or for the moon, stars and sun to be in perfect alignment. Whatever the reasons may be, buyers are still cautious and that means, if you’re in the market to sell, you’d better be talking with a professional and deciphering this important information.

If you’re looking to sell your home, please feel free to call me and discuss how we can counteract this confusing real estate market. I can be reached at (631)881-5959.

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Mar

6

West Islip Real Estate: Land Of Opportunity?

Filed Under Buyers, Sellers, Sellers & Buyers, West Islip Real Estate | Comments Off



Let’s face it, the real estate market has been battered and continues to be wrought with declining prices. As homeowners struggle with dropping their home price to acquire a ready, willing, and able buyer in this tough market, I decided to showcase a few facts about the West Islip real estate market.

First, I want to focus on real estate in general and the yield of return over the past decade. Despite the real estate market being hammered over the past 5 years, the return from real estate investment is still very healthy.

Real Estate Return On Investment

As evidenced by MSNmoney.com and Case/Schiller in the graph above, clearly real estate, as a long-term investment, continues to crush the stock market. If you put $100,000 in the S&P, your overall return as of 2011, would be a loss of $12,000, leaving you with $88,000 of your initial investment. Compare that to a real estate investment, your return would put your investment funds at $145,300. And keep in mind when you purchase real estate, the power of leverage (borrowing to buy), increases your return on investment tenfold. Whereas with stock, the average investor doesn’t “borrow” money to buy stock.

Now West Islip, as the “Land of Opportunity”, offers up some fantastic opportunities for both the first-time buyer and second-home and move-up buyer.

West Islip Real Estate For Sale

There are currently 142 homes for sale in West Islip according to the Multiple Listing Service of Long Island. Nearly 25% (or 35 homes) have a price tag of $350,000 or less. If you are a first-time buyer looking for a home in the lower price range, there are some very good opportunities.

John Scuotto, who owns a home for sale on Muncey Road (currently listed by Realty Connect USA), made it very clear, “The regular first-time buyer, who wants to buy a home and live in it, is foolish not to buy now.” Scuotto’s home is currently listed for $280,000 (one of the lowest priced homes in West Islip). “Obviously it’s a buyers market and while people are still afraid and waiting for the bottom, I think we’re there!”

Now for the higher-end buyer looking to make a purchase in the million dollar market, West Islip of course, has incredible waterfront and waterview homes for sale. Currently, there are 23 waterfront homes for sale in West Islip. However, you don’t need to pay one million dollars for the waterfront location! In fact, there are waterfront homes priced as low as $625,000!

The “middle market” defined as that $400,000 to $700,000 range, has the largest inventory in West Islip, with 38.7% or 55 homes for sale currently, according to the Multiple Listing Service of Long Island. Thirty of these homes are priced under $500,000. So for the move-up buyer or first-time buyer looking in the $400,000 range, the West Islip real estate market has much to offer.

Bottom Line

According to the Macro Market Home Price Expectation Survey (see graph below), home prices are expected to rise over 12% during the next 5 years.

Armed with information like this, I hope any prospective buyer, looking in the West Islip area, doesn’t hesitate to get pre-approved for a mortgage and organize a serious home search. From where the real estate market was in 2005, there is no doubt that West Islip in 2011, is a land of opportunity.

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Mar

2

Home Buyers: Opportunity of a Lifetime?

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I often point out that if you’re looking to buy a home, you should be more concerned about the COST of a home rather than the PRICE. Price obviously is a component of cost, however, unless you buy all-cash, you must also be concerned about the financing of the purchase. The price and the financing together determine the cost of a home. Today, we want to look at only the financing piece.

An opportunity exists today because of recent government involvement; an opportunity that may never again be available in our lifetimes. There has been much discussion about what role the federal government should have in supporting homeownership. We will leave our opinions on the debate for another time. However, we want to alert you to two advantages available to a purchaser today that may disappear in the future:

Historically low interest rates
The ability to lock in these rates for thirty years

Interest Rates

Because of the financial crisis, the government stepped in and instituted a series of programs which pushed mortgage interest rates to historic lows. If we look at 30 year mortgage interest rates before and after government intervention we see the impact these programs had (see chart below).

According to Freddie Mac, from 2006 to the start of the financial crisis (the fall of 2008), the average rate was 6.29%. Since then, the average rate has been 4.92%.

A purchaser can still get a 30 year-fixed-rate-mortgage at approximately 5%. However, interest rates this low may soon disappear. The government has questioned its role in supporting homeownership. In the administration’s REFORMING AMERICA’S HOUSING FINANCE MARKET: A REPORT TO CONGRESS, they are very strong in voicing their thoughts on this issue:

…our plan also dramatically transforms the role of government in the housing market. In the past, the government’s financial and tax policies encouraged housing purchases and real estate investment over other sectors of our economy, and ultimately left taxpayers responsible for much of the risk incurred by a poorly supervised housing finance market.

Going forward, the government’s primary role should be limited to robust oversight and consumer protection, targeted assistance for low- and moderate-income homeowners and renters, and carefully designed support for market stability and crisis response…

Under our plan, private markets … will be the primary source of mortgage credit and bear the burden for losses.

What are the probable results of this decision?

The Royal Bank of Scotland:

“The (government) currently provides 95% of housing finance in the U.S.; any reductions of their involvement in supporting mortgages mean interest rates will have to go up to induce private lending.”

AnnaMaria Andriotis, writer for SmartMoney:

“In the proposals were changes that will mean more expensive mortgages, with higher fees and, probably, higher interest rates, larger down payments and, in the near term, fewer lenders to choose from.”

The day of a 5% rate seem to be coming to an end.

Locking in a rate for thirty years

We must also realize that having the ability to lock-in a rate for 30 years may soon be a thing of the past.

There are a growing number of people who think that our mortgage industry should imitate those of other industrial countries around the world. If we do start limiting government support for the mortgage process, the 30-year-fixed-rate mortgage may disappear. Other countries, like Canada, only allow a purchaser to lock in a rate for a five year term. After that, the borrower must renegotiate a new mortgage at current rates. Could that happen here?

Mark Zandi, Chief Economist of Moody’s Economics.com addressing the administration’s recent report:

“A private system would likely mean the end of the 30-year fixed-rate mortgage as a mainstay of U.S. housing finance. A privatized U.S. market would come to resemble overseas markets, primarily offering adjustable-rate mortgages. Based on the experience overseas, the fixed-rate share in the U.S. would decline to an average of between 10% and 20% of the mortgage market compared with a historical average of closer to 75%.”

Bottom Line

The COST of a home is dramatically impacted by the mortgage component. Today, we can get a 5% mortgage and lock it in at 5% for the next thirty years!! Both of these opportunities may disappear in the future. You should take this into consideration if you’re looking to purchase a home.

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