Bonds

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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Will You Have a Place When the Music Stops?

Monday, March 1, 2010

You Know the Tune

The downturn of the housing industry has been music to a buyer’s ears. You know the tune: Low interest rates, a first-time homebuyer tax credit, falling home prices, a vast selection of foreclosed properties… The problem is, buyers have enjoyed the party so long that they think the music will never stop. But it will. All good things must come to an end and in this case, the end will come sooner rather than later. As a buyer, you have to ask yourself, “Will I have a place when the music stops?” You will, if you’re informed and you’re prepared.

Low Interest Rates

Interest rates are being kept at artificially low levels by government stimulus efforts. In a nutshell, the Treasury has committed to buying $1.25 trillion dollar’s worth of bonds. This artificial demand has kept the price of bonds up. Since yields move opposite to the price, a high bond price means a low yield. Low yield, low interest rates.

When the demand drops, the price drops. It’s the old supply and demand thing. When the price drops, yields go up. High yield, high interest rates.

The important thing to know is that the bond-buying program ends at the end of the first quarter: March 31. Many economists believe that rates could climb by a half point to as much as a full percentage point higher. You could see rates as high as 6.00% by mid-April. (More background at CBS News: How High Will Mortgage Rates Go?)

A one-time feel-good tax credit is wonderful but it masks the single biggest concern that SHOULD be on a buyer’s mind: Interest rates. Nothing cuts into buying power like a higher interest rate. (Read Great Rates)

Remember, you make money when you BUY not when you sell. YOU control the buy side, the sell side will always be an uncertainty. When you lock in a low rate, you’re locking in a better profit down the road.

First-time Homebuyer Tax Credit

Speaking of FREE money… how about $8,000 bucks? No matter who you are, $8,000 dollars still buys a lot of sandwiches.

If you haven’t been keeping up with the news, if you sign an agreement to buy your first home by April 30 and close on the deal by June 30, you probably qualify for a FREE $8,000 dollars courtesy of government stimulus efforts. The music stops on April 30. (Realtor.org: Tax Credit)

Short sales and other kinds of distressed properties take 3-4 months to close. This means that all those great deals that buyers have been dreaming about no longer make as much sense in just a few weeks from now.

Falling Home Prices

Ask an experienced Realtor® and they’ll tell you that in Northeastern Massachusetts, home prices are NOT falling. They’ve stabilized and are on the upswing. That’s great news for sellers, not so much for buyers. Again, it’s a supply and demand thing.

The fact of the matter is, there are a whole lot more buyers out there than there are sellers. Inventory around these parts is tight. If they can help it, sellers avoid putting their homes on the market during the holidays. And then they wait out the cold months of January and February. And then they wait until prices firm up. And they wait… and wait… and this puts pressure on buyers and guess what? Home prices go up!

Today. Right now. In Essex and Middlesex counties, inventory is being snapped up like it’s going out of style. There are multiple offers and bidding wars. Buyers are losing properties by offering too little, too late. And then they have to settle for second best.

The “Falling Home Prices” music has already stopped. What you read in the news is for national AVERAGES that take into account some seriously hurting parts of the country like Florida, Nevada, Michigan, et al. In the Merrimack Valley, getting enough inventory is the hard part.

Foreclosed Properties

There’s no doubt that foreclosures are out there but they’re subject to the same laws of supply and demand that all the other houses are. There are bidding wars and multiple offers on these, too. Plus, they have the added burden of taking 3-4 months to close, the generally poor condition they’re in, and the lack of certainty that your offer will actually be the one that the bank finally decides to accept once they get around to sifting through the pile of offers on their desks.

Foreclosures are for investors, not for primary homeowners. Investors flip a house in such a short amount of time that interest rates don’t have time to fluctuate so much that it’s a major concern to them. They’re looking for a bottom-line profit and they generally don’t qualify for a tax credit. Competing against investors in a market that’s starting to heat up doesn’t make much sense if you’re looking for a place to call your own. (How to Flip a House Like an Investor)

A Sense of Urgency

It’s hard to imagine that there are still folks on the sidelines about buying a home but Realtors® see it all the time. They give buyers a list of possibilities, suggest and show them the best of the bunch, and still, the buyer keeps looking. If they knew the kind of hangover that’s in store for them when the party’s over, they’ll want to act sooner, rather than later.

Can you imagine? Higher rates at the end of March, no more tax credit, foreclosures not being the sweet deals that they used to be, and home prices heading up with each passing day!

If you’re a buyer and you need help finding a home, please write to Brian X. Murphy. If you’re a seller, the inventory is desperately needed. Please CALL (978) 852-6006 TODAY!

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Great Rates

Friday, December 11, 2009

The Ninth of Ten Reasons Why RIGHT NOW is the Best Time for Home Buyers

Interest rates today are at about 5%. They’re so low that you’ll be telling your grandkids about them! People moving into your new neightborhood will be jealous of the rate you locked in TODAY if you buy your home TODAY. Check BankRate.com for an idea of current interest rates.

Rates are being kept artificially low by government stimulus programs. The Treasury has committed to buying bonds at an accelerated pace into March, 2010. The increased demand has increased the prices of these bonds. When demand goes up, prices go up. Since yields (or rates) go up or down opposite to the price of the bond, the YIELD goes DOWN the more prices go up.

When the Treasury program of bond-buying goes away, prices of bonds are expected to drop because their demand drops. This means that rates are expected to go up. Remember: Rates move inversely to the price of the bond. Bond price up, interest rate down. And vice versa.

For more information on the Treasury’s bond-buying program and how it affects interest rates, start a conversation in the box below.

Suffice it to say, just like trying to predict where home prices are heading, it’s hard to predict what tomorrow’s interest rate will be. There’s one thing you DO know for CERTAIN, though. In six months, interest rates will be higher than where they are TODAY. If you think rates will be lower in six months, will you share your thoughts below?

Your next question is, “What does an increase in the interest rate mean to me?”

Unless you’re paying cash, you have to borrow money. When you borrow, you’re charged interest. That is the cost of money.

You know that there is a cost for everything. When you buy a loaf of bread, it costs money. When you buy a house, it costs money. If you buy something that you don’t already have, it costs money.

If you don’t have MONEY… you have to buy some – or at least borrow some until you pay it back. There’s a cost for that, too: The cost of money is the interest rate. You’re buying money at the same time you’re buying a house. The more the money costs, the less house you can afford.

If “money” costs 1% more because you’ve missed the current sale on money, you have 1% less to spend on a house. If you’re in the market for a $200,000 dollar house, you have to spend an extra $20,000 on money. This means you can only afford a house at $180,000. If you’re in the market for a $500,000 dollar house but you missed the current sale on money, you’ve lost $50,000 in buying power. You can now only afford a $450,000 house.

When rates go up, your buying power goes down. It has a serious affect on the American Dream and it’s often overlooked because it’s too difficult to figure out.

Smart buyers know the numbers, know the cost of “money,” and know what the house is going to cost. They know the TOTAL cost of the house.

When you’re in the market for money AND a house at the same time, it makes sense that you talk to an experienced Realtor®. When you engage a team of a lender AND Realtor®, you’ve got a powerful combination that can mean the difference between a no-hassle closing and one fraught with extension requests. Is that worth a conversation? Start typing below.

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