Economy

Five Trends to Watch in Real Estate

Friday, June 4, 2010

Home sales are surging. Don’t be left behind.

As a buyer, there are five trends you want to watch as you shop for your new home. The last one, though, is personal.

  1. Prices
  2. Sales
  3. Interest Rates
  4. Jobs
  5. Showings

Prices

In the Merrimack Valley and Southern New Hampshire, home prices have stabilized and are even ticking up. New homes are coming on the market all the time and they’re being priced more aggressively. The buyers, however, aren’t biting at the aggressively priced homes.

The buy side of the market is still of the mindset that foreclosures or other “distressed” properties are a bargain. As new buyers enter the market and face the reality of homes that require “too much work,” they’re starting to move up-market and considering more realistically-priced homes.

Buyers who are looking for a “deal” on real estate will find them harder to come by going into the Fall selling season.

Sales

Single-family home sales are brisk in this area. Not counting condos and multi-families, 34 single-family homes closed in the month of May in Methuen alone. Andover had 24 closings, North Andover had 19, Haverhill had 34, Lawrence saw 22, and Lowell recorded 39. North of the border in New Hampshire, Salem saw 14 closings of single-families, Portsmouth had 22 sales, and Nashua enjoyed an incredible 47 sales.

Across the nation, Lawrence Yun, Chief Economist for the National Assoc. of Realtors® (Bio) says that in the short-term, sales will decline as the effect of the home-buyer tax credit wears off but over the long-term, sales should increase as the market returns to a more normal equilibrium.

There is no question that the real estate market in the Merrimack Valley and Southern New Hampshire is alive and well. To see so many single-family homes change hands in a one-month period should encourage buyers and sellers alike to take advantage of this traffic.

Interest Rates

The market anticipated rates moving higher as the government wrapped up its purchases of bonds at the end of the first quarter. This buying program was part of the economic stimulus package that was designed to keep interest rates low. As luck would have it, the European economies ran into difficulty. The trouble in Europe has sent bond buyers scurrying to the safety of U.S. bonds.

Yields (or rates) move inversely to the price of bonds. As bond prices rise, yields go down. Uncle Sam was driving demand for bonds as part of its stimulus program. That demand kept prices high, and yields low. When the Treasury stopped buying, European investors stepped in to fill the void.

Interest rates are expected to stay low for as long as there is weakness in the European economies.

Jobs

According to The Boston Globe (Business Updates), the unemployment rate in Massachusetts moved lower to 9.2% in April from 9.3 percent in March and 9.5 percent in February. While still on the high side, the trend towards lower unemployment is becoming clear.

More people with jobs – and money in their pockets – means higher demand for everything from washers and dryers to cars and real estate. Clearly, the economy is on the mend: 90% of the people in Massachusetts alone have a job and the means to buy a home if that’s what’s important to them.

More jobs means more competition for buyers in the real estate market. Buyers should be on the lookout for bidding wars on the more realistically-priced homes on the market and be prepared to offer their highest and best bids on the home of their dreams.

Showings

If you’re working with a good Realtor® and they’ve shown you 6-10 homes that meet your requirements and you’re still not satisfied, you might be in danger of being priced out of the market (Is it Really a Seller’s Market?). There’s not a single buyer out there that doesn’t want to “fall in love” with a home. But, if you’re not feeling the love in the price range that you’re comfortable with, you might find yourself having to stretch a bit.

Don’t be afraid of stretching today in order to live the life you love for the next 10-20 years or more! Today’s investment in real estate can bring years of pleasure in the future.

Buyers will do well to consider that they’re locking in a lifestyle at today’s dollars and interest rates that will seem trivial only five years from now (How to Take the Risk Out of Buying a Home).

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Did You Miss a Tax Credit BETTER than the Home Buyer Tax Credit?

Monday, April 26, 2010

Missed the Home Buyer Tax Credit? No big deal!

There’s been a lot of anxiety over trying to buy a home in time to qualify for the First-Time Home Buyer Tax Credit. It was good as far as it went. It certainly got a lot of people off the sidelines and into the home of their dreams. It’s also gotten a lot of people into a home they don’t really love, just for the sake of getting that tax credit. You’d be interested to know that there was a tax credit EVEN BETTER than the one for first-time home buyers.

For the biggest bang for your buck, the Cash for Clunkers program was even better than the First-Time Home Buyer Tax Credit.

Cash For Clunkers Savings First-Time Home Buyer Savings
12% 4%

 
The Cash for Clunkers program offered between $3,500-$4,500 bucks if you turned in an old car and bought a new one for under $45,000 dollars. Do the math: You saved 12% off a new $30,000 car if you got the minimum $3,500 rebate. That’s not a bad savings!

First-time home buyers were eligible for an $8,000 tax credit but if you did the math, they really only saved 4% on a $200,000 home. $8,000 bucks buys a lot of sandwiches but doesn’t really save that much when you think about it.

The point is, if you didn’t run out and buy a new car to save 12%, you’re probably not too worked up about not saving 4% on a new home.

On the other hand, if you’re reading this, you’re probably still in the market for a new home. SERIOUS buyers are watching:

  1. Home Prices – The MLS and Nat’l. Assoc. of Realtors® have declared a seller’s market in Essex and Middlesex counties. (Read Is it REALLY a Seller’s Market?, and 4Q09 Economic and Market Watch Report) Each new home coming on the market today is priced more aggressively than the last.
  2. Mortgage Interest Rates – Mortgage interest rates are low by historical standards. Even if they shoot up to 6%, they’re still low. They’re just not as low as the 5% that you could have had just a month or so ago. When rates go up by 1%, you LOSE $20,000 in buying power on a $200,000 home. On a $300,000 dollar home, you’ll spend $30,000 more just in financing. That hurts.
  3. Taxes – Have taxes EVER gone down? Demand for government services continues to increase. The problem is, the “government” is us. Governments don’t have money. The services they provide are paid for by taxpayers like you. The government has bailed out the auto industry, the housing industry, and the financial industry. It’s pressing to “go green” and to reform health care. All this money comes from income taxes and… wait for it… property taxes. You’ll soon see an increase in property tax rates and home assessments. These new amounts will be plugged into the mortgage calculator. The pain will become evident.
  4. Inflation – There’s a lot of worry in the financial press about inflation. And why not? The government has turned on the printing presses and put a lot of money into the system. All this money sloshing around will create demand for goods and services. The buyers for the goods and services are just coming back into the market. Tech spending is way up and manufacturing is coming around. Industry is ramping up in anticipation of greater consumer demand. When this pent-up demand hits, watch out! When you’re spending more on everything else, you’ll have less to spend for a new home.

A defensive play in real estate means BUYING A HOME TODAY to lock in low interest rates, low home prices, and low taxes before higher inflation takes a big bite out of the home of your dreams. (Read How to Take the Risk Out of Buying a Home)

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Is it REALLY a Seller’s Market?

Tuesday, April 6, 2010

How to tell if you’re being priced out of the market

You’ve been sitting on the fence about buying a home. You’ve been looking and looking but nothing really strikes your fancy. There’s a good reason for that! You’re being priced out of the market. And it’s only going to get worse from here.

Your Price Range is Getting Tight

You don’t see it coming – it happens that slowly – but one day you wake up and decide that now is not the time for you to buy a home. You just got priced out of the market.

It’s a shame, too: There are so many good homes just begging to be bought but you keep waiting for new inventory. And it never comes. That’s because new inventory is being priced more aggressively with each passing day. The new, GOOD stuff is not hitting your universe and you don’t know it because you’re “looking for homes between X and Y.”

Here’s the scenario: You buy your home based on your monthly payment. You HAVE to. It’s an economic reality. So, you set your Internet search criteria for homes in your price range. You can’t move higher than that because you can’t afford it. It’s normal. Only Bill Gates and Warren Buffet have the luxury of buying any darned thing they want. The rest of us have to live with the universe of homes in our search criteria’s price range. That’s YOUR universe. Read Fantastic Inventory.

The Mortgage Calculator Brings Bad News

You start to notice that the new stuff that hits your radar isn’t quite what you were looking for. Each day, you get more frustrated. You start playing with numbers with the mortgage calculator to see if you can afford more. You check the interest rates and notice that they’re ticking up. When you plug the new number in, your dreams are dashed!

The next shoe to drop is the disappearing tax credit. Current homeowners are eligible for $6,500 bucks, first-timers could score $8,000 grand. You have to sign a purchase and sale agreement by April 30 and close on the deal by June 30. Short sales and bank-owned properties disappear from the radar since they probably won’t close in time. After April 30, everything gets $6,500-$8,000 more expensive.

The numbers start looking worse for you. How about tax rates? Someone has to pay for free health care, “cash for clunkers,” tax credits for homebuyers, and all that other stimulus. You’ll see that person in the mirror. Property assessments start to rise, tax rates are hiked. The new reality that comes from the mortgage calculator is not pretty when you plug in higher taxes.

Jobs: Good News, Bad News

The good news on the jobs front is that jobs are coming back. Hooray! The bad news for homebuyers is that jobs are coming back. Boooooo… More people with more money in their pockets means increased competition. More demand means higher home prices.

Not too many folks are worried about mass layoffs anymore. Indeed, the latest reports from the National Association of Realtors and MLS Property Information Network, the local Multiple Listing Service, is that Essex and Middlesex counties have fallen into Seller’s Market territory. The main driver of this new phenomenon is jobs.

The most recent report is the 4th Quarter 2009 Economic and Market Watch. It shows that on a scale from 1 to 5, with 5 being a full-blown Seller’s Market, Essex and Middlesex counties are at a 4. The prior two quarters were at a neutral 3. You can see all these reports on the MLS Web site.

What’s Past is Prologue

Shakespeare said it best, “What’s past is prologue.” The fourth quarter of 2009 is old news. You and your Realtor® are making fresh news TODAY. Don’t let the headline read, “Seller’s Market Leaves Would-Be Buyers in the Cold.”

How to Save Yourself

Folks on the fence about buying a home are spending WAY too much time in front of a computer screen and not enough time inside of houses. The Internet is a sword that cuts two ways: It makes searching for homes so much easier but it also feeds your indecision. You’re overloaded with information but the information you’re getting is not helping you make a decision.

Pretty pictures on the Internet don’t tell you anything about the layout of a house. The pretty pictures are silent on the location or neighborhood. If you’re SERIOUS about buying a home, you absolutely MUST work with a Realtor® who can help you line up financing, set up private viewings on YOUR schedule, and coordinate the closing and final move into your new home.

A Realtor® will help you decide what’s best for you and your family. The Internet will show you pretty pictures of a Seller’s Market while you get priced out of the market.

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How to Take the Risk Out of Buying a Home

Thursday, April 1, 2010

Not owning a home is risky behavior

There are far too many buyers sitting on the fence about buying a home. It’s understandable. Home prices peaked in the 2nd quarter of 2006 and have dropped over 30% since then! Who wants to buy something and watch its value plummet like that? However, buying a home is unlike buying anything else. A home is one of life’s necessities like food, water, and clothes on your back. You will always need shelter. Buying shelter today takes the risk out of buying it later.

Prices go up and down at the same time

Buyers understand that ALL home prices move up or down pretty much the same from one house to the next. That’s why they focus on “the market.” They’re always asking, “What’s the market doing? Where are prices heading?” They know that the overall market for shelter is what’s important. What they FEAR is whether they’re paying too much. They’re worried about a profit when it comes time to sell.

The ONLY time home prices matter
is when you no longer need to OWN shelter.

Deciding what to do with the proceeds of a sale

For the most part of your home-owning life, you’re going to move from one home to the next. You’ll exchange one form of shelter for another. Relocate from one area to another. Deciding what to do with the proceeds from the sale of your current home is elementary: You’re just going to plow them into the next home.

So, if you know that all home prices move up and down more or less in tandem, does it really matter where prices are when you sell? If you sell low, you’re going to buy your replacement home low. If you sell high, you’re going to buy your replacement home high. There’s no material difference. Read Here’s a Quick Way to Know When to Buy and When to Sell.

BUT! When you finally move back in with the kids or begin to downsize, THAT’S when you need to consider the proceeds of a home sale. The equity that’s left over should provide a good portion of your nest egg.

The study shows that equity is king

The Wharton School of Business at the University of Philadelphia just released a White Paper entitled “Drowning or Hedging? The Risks and Rewards of Owning a Home.” In it, they studied graduate students who were considering whether they should buy a house while they were attending school. The students knew that they’d be short-term owners in the Philadelphia area and that once school was over, they’d be relocating to a new job or going back home.

The study showed that the students were much better off buying a home as soon as they were able. When they did this, they “locked in” the cost of shelter. The students took away the volatility of the rental market since there is no way to know which way rents were headed. And, since the cost of rent varied tremendously from one location to the next and the students didn’t know where they’d end up, there was no way to “hedge” against sticker shock in their new location.

But, since home prices everywhere move up or down more or less in tandem, the equity they were building helped cushion the burden for the next stage in their lives.

Equity is king. Beware of leverage. Leverage is borrowing to own a home. When you’re over-leveraged with exotic loan programs or you’ve drained every last bit of equity out of your home with second and third mortgages, you’ve left yourself vulnerable to the market forces of homeownership. You’ve seen this with the current crisis in the housing market.

Building equity today minimizes risk tomorrow

The Wharton Study shows that it’s actually less risky to own a home than to not own one. Not “locking in” the cost of shelter is foolish with home prices as low as they are and with interest rates at all-time lows (Read about the cost of money and Great Rates). Throw in some government incentives in the form of tax credits for current homeowners and first time buyers and it’s a no-brainer if you’re in a position to act.

Sitting on the sidelines is not an option for those who wish to minimize the risk of homeownership.

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Why You Should Watch the Jobs Numbers

Sunday, March 28, 2010

People aren’t afraid of losing their jobs

You’re a buyer and you’re looking for a new home. You’re hoping you can get a tax credit but you know that in the bigger scheme of things, $8,000 bucks for a first-timer or $6,500 bucks for a current homeowner isn’t that big of a deal (Tax Credit). You KNOW you’re worried about interest rates creeping up (CBS News: How High Will Morgage Rates Go?) but you PRAY that home prices stay affordable. Watch the labor market and unemployment report for clues to what the future holds.

The Recession is Easing

We’re already seeing the effects of the recession easing. People aren’t so afraid of losing their jobs. Consumers are coming back into the stores and opening their wallets. Retailers are stocking their shelves and that means that manufacturers are ramping up production. This renewed economic activity lifts people’s spirits and spells J-O-B-S. Jobs!

According to the Economic and Market Watch Report for the 4th Quarter, 2009, the National Association of Realtors® says that 1,036 jobs were added in Essex County. There were 2,732 new jobs added to the payroll in Middlesex County. That’s the fourth quarter of last year. That’s old news. (Late News Cycle).

Realtors® are Busy

It just keeps getting better! If you’ve just come back from reading (Late News Cycle, you’ll know that what’s happening TODAY is more relevant. This author has been working flat-out seven days a week since the beginning of February. He’s been in someone’s house almost every night up to 6:00, 7:00, 8:00 p.m.! And he’s wearing a silly grin.

Over the past few years, Realtors® haven’t had to worry about setting appointments. They’ve had a lot of free time on their hands. TODAY, Realtors® live on a strict schedule set in an appointment book. And all of this is because people have more confidence in the economy, more money in their pockets, and no more worries about the next wave of layoffs.

Unemployment Report is Due Friday

On Friday, the government will release its monthly employment report. Most economists expect that it will be the first ray of sunshine since 2007. If the news breaks as expected, SELLERS will begin gaining pricing power. Pent-up demand for homes from serious buyers will be unleashed. Serious buyers are like your Mom and Dad. They want a homestead. Home, Sweet, Home. They’re turning away from beaten-up foreclosures and looking for something to raise a family in.

You’re a buyer and you’re looking for a new home. You’re also looking at increased competition from other buyers with more confidence in the economy, more money in their pockets, and no more worries about the next wave of layoffs. AND, you’re facing SELLERS with increasing pricing power.

Good Inventory is Needed

Currently, this author reports that the hardest task he’s facing is getting enough inventory. It’s selling as quickly as it comes on the market — if it’s in decent shape. This means that buyers are facing bidding wars for the good stuff while the foreclosures just plod through the bank bureaucracy.

Watch the jobs report on Friday. Watch the interest rates. Notice how new inventory is coming on the market priced more aggressively. And, be careful that you don’t find yourself priced out of the market or having to settle for second best. If you’re a buyer, acting sooner rather than later is in your best interest.

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