Is it a good time to buy and sell real estate?
The perception is that REALTORs are always trying to convince their clients to buy or sell real estate each and any time. But the reality is that when the buyers or sellers are on the verge of making a decision, they are the people who make that decision based on the information they have, and how they process that information.
As such, it is always a good idea to stay abreast of the real estate market movement and factors that are affecting --- or effecting --- that movement.
Affect versus Effect
There is a difference. When used as a verb:
- Affect means: to have an influence on; to act on the emotions of; to attack or infect
- Effect means: to bring about to produce an outcome to achieve a result
How to we apply this to real estate and to answer the question of whether or not it's a good time to buy or sell? The answer lies in how people process, interpret and take action on the information they know about the current situation.
Tax credits
- The National Association of REALTORS helped to effect(cause to happen) the extension and expansion of the tax credits by encouraging its membership to contact their legislators to pass the bill and encourage President Obama to sign it.
- Who are affected by the bill when it was signed? The first time home buyers and repeat buyers who have until April 30 2010 to get into contract, and have 60 days to close escrow to qualify for the tax credit.
Short sales and Foreclosures
- The four largest lenders are staffing up their short sale department to effect a simplification of the short sale process
- Homeowners who are suffering reduced incomes and drop in home market values are facing foreclosure, and are directly affected by the economic downturn. Market observers like Steve Harney say that "if anything, future foreclosure inventor is underestimated, not overestimated."
- More short sales and foreclosures may adversely affect the market values of neighboring homes. So if property owners are contemplating selling their home, they should factor the projected increase in distressed properties. How can they compete? Price their homes aggressively so that they move fast and ahead of the market. Assume
Assume $500,000 home in November 2009, and owner has an outstanding loan of $400,000 at 6% interest.
- Selling now for $500,000 with projected close of escrow by April 30, 2010: $64,600 net at closing
- Waiting until June 2010 when more foreclosures and short sales are expected to come on the market, the value of his home may be affected by as much as 10% or down to $475,000. Projected close of escrow 90 days: $61,873 net at closing
Interest rates and FHA down payment
Historically speaking, the current rates are still some of the lowest they've ever been in 40 years. See FreddieMac for a peek at 30-year rates since 1971.
- Interest rates may rise by 1 - 2% by next year. A concern for increasing rates may effect renewed interest in buying property, coupled by a desire to meet the tax credit deadlines.
- When interest rates rise, this may affect the buyers' ability to qualify for a loan if the monthly mortgage payments based on the higher interest rates are higher than what their current income level can support. It is important to relate the cost of buying a home --- if prices decrease by 10%, but the interest rate increases by 1% --- how will that affect your monthly payment? Assume 30-year mortgage with 20% down payment , in Oakland CA
- $500,000 purchase price at 5% interest rate: $2,814/month
- Reduced purchase price by 10% or $475K, with increased interest rate to 6%: $2,912/month, or $98 higher
Now, about that FHA down payment....
Keep your eye on this bill H.R. 3706 that proposes increasing down payment for FHA insured mortgages from 3.5% to 5%. Reactions are mixed regarding the pros and cons of this bill and what its effect will be (more bailout?) and how it will affect buyers (more difficult to qualify to buy).
According to Wall Street Journal, the agency opposes this bill. David Stevens, the commissioner of the FHA, warned that "the biggest mistake" the agency could make is to "overcorrect."
Can one say information overload? Political intervention and interference? Who do we believe? What can we expect?
If you are looking for a great real estate agent in the Palm Springs area,
Kathy Schowe 760.333.8886 
Visit: schoweproperties.com & livethedesertlife.com
The Lori Bowers Group 
La Quinta, California
