Feb

29

Real Estate Market: Time To Buy (Update)

Filed Under Buyers, Mortgage Matters, Sellers, Sellers & Buyers |

One of the many considerations you must make as a prospective home buyer that is the most critical is affordability. “Can we afford this? No can we really afford this?” You run through your expenses, mortgage reps tell you this, real estate agents tell you that, on paper it looks good, but at the end of the day, tally it all up and what do you have?

From personal experience, (at least in my case) you have multiple pieces of scrap paper all over the place with scribblings of expenses and income and second thoughts about whether or not, this is the time to actually buy. Especially in this market, buyers are determining the timing of their purchase and thinking to themselves, “Can I get this for less money? How low will they go? How bad is the market…really?”

Great questions to ponder among the many. However, at the end of the day, you’ve got to search for the best deal on a mortgage (if conventional financing is being sought) first and foremost. It really all starts with the financing. Your financials compared with the best financing you can possibly obtain that will allow you the flexibility to at least breathe somewhat comfortably when making your monthly payments…all of them.

There are a number of tools you can use as prospective home buyer before you even meet with a real estate agent or mortgage/bank representative. Realtor.org is a great place for people to start their information investigation. From this site, another great site is housingmarketfacts.com, which was developed by Realtor.org to assist buyers in determining the “if’s”, “how’s”, “where’s”, “who’s” and “what’s” of the real estate marketplace.

There is plenty of opportunity out there right now. As a result of several factors like builders across the country skimming back on new construction projects and the government stimulus package helping out delinquent sellers to avoid foreclosure, the market is being corrected. In a previous article entitled, Real Estate Market: Supply Vs. Demand, we looked at how the basic principles of supply and demand are impacting prices (when supply exceeds demand, prices must drop in order to bring balance to the market).

So let’s look at two key factors that are helping lower supply. The outlook for the government stimulus package appears to indicate that 370,000 homes will avoid foreclosure as a result of this plan being implemented. That’s not a massive number in comparison to the 2.2 million homes that will most likely hit the market in foreclosure, but it will certainly help inventory stay down somewhat. Additionally, new housing starts are down over 33% and permits for new construction are down over 50%.

These are two strong indicators that supply is catching up to demand. Here locally on Long Island, many builders have cut back on new housing starts and those that own land and are ready to build have pulled back on their projects until the market balances out. Home builders pulling back on new construction is a natural occurance of the market correction. Builders have to stop putting up houses every month because there’s no buyers for them.

New Construction Starts
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Also pulling demand upward is the new mortgage products backed by the FHA (Federal Housing Authority). With the projected raise in loan amounts expected to be passed very soon, the amount borrowers can get, at good interest rates will end up saving home buyers more money. Plus these are government-backed loans, which lenders like because they know their loan has a very good borrower, plus the 80% of the loan amount is backed by the government. A few things need to be explained here:

1. Borrowers must go through a more stringent qualifying process in order to qualify for an FHA mortgage (this makes lenders feel better because they know they’re getting someone who most likely can afford the loan and will not default on the payments).

2. An FHA loan represents added security to lenders because if the borrower defaults and doesn’t pay, the government will give the lender up to 80% of the loan amount. This brings the risk ratio of the loan way down and the lender, any lender, feels better about making “safe” loans where they know their investment will be a good one.

Jumbo Mortgage Amounts
Click here to enlarge

So, finally, if you’re thinking about buying real estate, take into consideration that the average homeowner’s net worth is $171,000 - that’s 46 times more than the average renters, which is about $4,800.

Prices are down and interest rates are hovering around 6% for a 30 fixed mortgage. Call me if you want more information on loans, homes, rentals, investments - anything real estate. 631.587.1700, ext. 51

(c) Copyright 2008 www.tommcgiveron.com

By Tom McGiveron

Slides developed by Steve Harney Inc.


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