Who wins in this real estate market?
Everyone is always asking me, how bad is the real estate market? Is it getting any better? With all the focus on the negative, I began thinking, maybe we should be focusing on who is doing WELL in this market. With stocks, Jim Cramer says, "There's always a bull market somewhere." Well, within the real estate market, there has to be someone who is doing well, right? Without further ado, here are the 3 groups of people WINNING in the current market conditions:
1. FIRST TIME BUYERS. This may seem obvious, but let me clarify. I mean first time buyers who are actually pulling the trigger. Yes, it's scary to buy your first home right now, with the media acting like it's real estate doomsday, but the folks doing this right now are going to see immense benefits down the road. On one hand, you have tons of homes to choose from and desperate sellers, making it easy to get a great deal. You still have tons of foreclosed homes out there as well, so if you're handy you can get an even better deal (HUD is offering $2500 to any owner occupant who buys a HUD home!). But perhaps the best condition for first time buyers right now is the interest rates - they're at historic lows. With the Ohio Bond Money program, a first time buyer with decent credit can get 100% financing and the rate has been hovering between 5.35% and 5.75%. 30 year fixed rate. That's not a typo! I believe 5 years from now, when rates are a couple points higher, these buyers will be the envy of everyone they know due to this mortgage rate alone, not to mention the fact that they bought in during what experts are calling the "opportunity of the decade."
Now, still on the winning end, but not nearly as much, are the first time buyers who are still on the fence and have not bought yet. Many of these people are trying to "time the market bottom." This makes sense in theory, but I believe it's IMPOSSIBLE TO TIME THE MARKET BOTTOM. There will be no magic sign that indicates the real estate market is going upward again. At least, not until a couple straight months of sales numbers come out (2 months after the fact) and show increases. And by that time, you're TOO LATE. You've missed the bottom and you're buying into the upswing again. These buyers also risk the mortgage rates going up while they wait. Especially in Cincinnati, where many areas have remained flat but haven't actually fallen in price, all you can do is buy while the market is generally down. Just like stocks again: buy low, sell high. Right now is the time to buy low.
February 2008 had 1,787 new pending home sales in Cincinnati, compared to 1,791 in February 2007. A whopping difference of.....4. Does that sound like sales are plummeting to anyone? Not exactly.
2. PEOPLE MOVING UP IN PRICE are the 2nd group of winners in this market. This means you're selling one home and buying a new one that is more expensive. The selling part may be painful right now, but overall you will be winning. Let me give an overly simplified example to illustrate:
Suppose if you bought a new home right now you would be getting a 10% discount, but to sell your current home, you have to sell it at a 10% discount (remember, this is very over-simplified, but bear with me). You're selling your $200,000 home and moving up to a $350,000 home. On the selling end, you lose $20,000. Ouch. But on the buying end, you gain $35,000. Opposite of ouch!
This example does clarify the big losers in this market: people who are moving down in price, and people who are selling a home but are not buying another.
3. INVESTORS WITH A LONG TERM HORIZON. By long term, all I mean is a minimum of 2 or 3 years. Basically, not the flippers, but those who hold property and rent it out. They are winning right now due to the ridiculous number of foreclosed homes out there to buy, which are their favorite kinds to buy because they don't mind doing some work on them, and they can get them for a great deal. The biggest problem that caused all these foreclosures (irresponsible/unregulated subprime lending) has been curtailed, and now it's just a matter of waiting for the rest of the foreclosures and will-be-foreclosures to work their way through the system. Within a few years, this glut of homes will hopefully be done with, and we'll be back to how it was in 2005, where there was so much competition over these kinds of homes that the professionals had to start going out to distant counties just to find good deals. At that point, the smart investors will be happy that they bought some homes now while the deals are great and rented them out since (the rental market is FINE, by the way). Good money will be made by investors this way. All they need, as Guns n' Roses once said, is "just a little patience."
So there you have it, the winners in this real estate market. Feel free to email me at jmandel[at]sibcycline.com with your thoughts!
1. FIRST TIME BUYERS. This may seem obvious, but let me clarify. I mean first time buyers who are actually pulling the trigger. Yes, it's scary to buy your first home right now, with the media acting like it's real estate doomsday, but the folks doing this right now are going to see immense benefits down the road. On one hand, you have tons of homes to choose from and desperate sellers, making it easy to get a great deal. You still have tons of foreclosed homes out there as well, so if you're handy you can get an even better deal (HUD is offering $2500 to any owner occupant who buys a HUD home!). But perhaps the best condition for first time buyers right now is the interest rates - they're at historic lows. With the Ohio Bond Money program, a first time buyer with decent credit can get 100% financing and the rate has been hovering between 5.35% and 5.75%. 30 year fixed rate. That's not a typo! I believe 5 years from now, when rates are a couple points higher, these buyers will be the envy of everyone they know due to this mortgage rate alone, not to mention the fact that they bought in during what experts are calling the "opportunity of the decade."
Now, still on the winning end, but not nearly as much, are the first time buyers who are still on the fence and have not bought yet. Many of these people are trying to "time the market bottom." This makes sense in theory, but I believe it's IMPOSSIBLE TO TIME THE MARKET BOTTOM. There will be no magic sign that indicates the real estate market is going upward again. At least, not until a couple straight months of sales numbers come out (2 months after the fact) and show increases. And by that time, you're TOO LATE. You've missed the bottom and you're buying into the upswing again. These buyers also risk the mortgage rates going up while they wait. Especially in Cincinnati, where many areas have remained flat but haven't actually fallen in price, all you can do is buy while the market is generally down. Just like stocks again: buy low, sell high. Right now is the time to buy low.
February 2008 had 1,787 new pending home sales in Cincinnati, compared to 1,791 in February 2007. A whopping difference of.....4. Does that sound like sales are plummeting to anyone? Not exactly.
2. PEOPLE MOVING UP IN PRICE are the 2nd group of winners in this market. This means you're selling one home and buying a new one that is more expensive. The selling part may be painful right now, but overall you will be winning. Let me give an overly simplified example to illustrate:
Suppose if you bought a new home right now you would be getting a 10% discount, but to sell your current home, you have to sell it at a 10% discount (remember, this is very over-simplified, but bear with me). You're selling your $200,000 home and moving up to a $350,000 home. On the selling end, you lose $20,000. Ouch. But on the buying end, you gain $35,000. Opposite of ouch!
This example does clarify the big losers in this market: people who are moving down in price, and people who are selling a home but are not buying another.
3. INVESTORS WITH A LONG TERM HORIZON. By long term, all I mean is a minimum of 2 or 3 years. Basically, not the flippers, but those who hold property and rent it out. They are winning right now due to the ridiculous number of foreclosed homes out there to buy, which are their favorite kinds to buy because they don't mind doing some work on them, and they can get them for a great deal. The biggest problem that caused all these foreclosures (irresponsible/unregulated subprime lending) has been curtailed, and now it's just a matter of waiting for the rest of the foreclosures and will-be-foreclosures to work their way through the system. Within a few years, this glut of homes will hopefully be done with, and we'll be back to how it was in 2005, where there was so much competition over these kinds of homes that the professionals had to start going out to distant counties just to find good deals. At that point, the smart investors will be happy that they bought some homes now while the deals are great and rented them out since (the rental market is FINE, by the way). Good money will be made by investors this way. All they need, as Guns n' Roses once said, is "just a little patience."
So there you have it, the winners in this real estate market. Feel free to email me at jmandel[at]sibcycline.com with your thoughts!
Labels: Cincinnati, foreclosures, home sales, HUD, real estate investing
posted by Jamie Mandel | 9:22 AM
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