About 'boulder outlook'|Live From Boulder, It's Moni!
Common sense tells us to buy low, sell high and that applies not only to the stock market but to real estate. What separates an investment in stocks from an investment in real estate is that real estate has "utility". Utility means that your home is more than an asset that may increase in value, it provides shelter (assuming it is not an investment property). Everything is in place to spark a real estate boom ... mortgage interest rates are low, sellers are motivated, housing inventory is available. Everything is in place ... everything except buyers. So, should you buy now? Mortgage interest rates are at historic lows and the Fed has announced that it will continue to intervene in the markets, buying mortgage-backed bonds, in order to keep mortgage rates low for some time. That tends to tell buyers that they have time ... and can wait. The availability of mortgage loans is not great right now, but if you are a conforming "buyer" - i.e., a buyer with 20% down, looking for 30-year fixed rate financing, most financial institutions can get you financed through Fannie Mae or Freddie Mac, taking no real risk on their balance sheet. Financial institutions should be willing to do this all day, all night. They sell the loan to the agency and maintain liquidity and take no credit risk. Now, if you are a buyer who is "outside the guidelines", good luck. Jumbo mortgage financing is tough to come by. If you do not have money down, you might look at FHA, if you qualify. You might also try a credit union in your area. Many are lending, though most like conforming mortgages too. Most mortgage companies went out of business over the past 2 years so there's not a lot out there for you. No stated income products, no subprime mortgage products. The availability of housing inventory is very high, particularly in areas where there have been a number of foreclosures. And despite the media, housing is regional and some regions have suffered more housing loss than others. The CA and FL markets have suffered the most, along with markets in and around Atlanta, Washington DC, Phoenix, and Las Vegas. And that inventory is cheap. Check the weekend newspapers (or their online sites) for public sale notices and go to a couple of auctions. You will get the flavor for how an auction works and for the distressed prices for homes in your desired area. You can also search websites that list foreclosed properties. You might also choose to work with a real estate agent who can advise you on home values (normal and current) and can give you good advice on the best neighborhoods, the best schools, the best resale values (normal), etc. Do your homework. This downturn in housing is not likely to resolve itself in the near term. You have time. Which brings me to the problem with buying now ... and the hesitancy of many to jump into the market. The housing cycle is not due to recover in the near term. So why jump in now? Why hurry? Deutsche Bank Global Markets Research and its Research Team, including analyst Karen Weaver, published at the end of March 2009 a round-up on the housing outlook across the US including a breakdown of the various regions of the country. Using affordability, Deutsche Bank had put together many publications on housing (Ms. Weaver called the housing bubble about 2 years before it burst) calling the continued rise in values unsustainable. Now, Deutsche Bank has augmented its analysis to include additional variables: unemployment, unemployment change, distressed inventory levels, and momentum. Based on their analysis, a number of housing markets are ripe for a return to positive values. Markets like Dallas, Santa Barbara, Fort Worth, Kansas City, Nashville, Columbus, San Antonio, Pittsburgh, Louisville, Boulder, and Fort Collins show signs that real estate values are at or near a bottom, show signs that distressed inventories of housing are manageable, and show signs that job losses are flat. If you are looking at these markets, now might be the time to buy. Sure, values could go lower, but housing affordability measures tell us from the Deutsche Bank analysis that an equilibrium has been restored where a historic average number of homeowners in that market can afford a mortgage. Now, there are no guarantees but ... It is also conceivable in markets with a large inventory of distressed housing, that it might also be a great time to buy. On www.cnbc.com on 4/9/09, there was an article featuring stories of new homeowners snapping up Miami condominiums. The report shows that there are bargains in many of these distressed markets. To buy these homes, you need to secure financing (and the cnbc.com article did a good job talking about the condo financing challenges) and you need to have a longer time horizon. If you think that the condo you bought for $85,000 that was $410,000 4 years ago will be $410,000 again, any time soon, you may need your head examined. But, if you love the place (and can put in a little or a lot of work) and plan to stay put for 3-5 years, buying a foreclosure is a great idea. It might also be a great idea if you are shopping for a second home. Many distressed properties are in traditional vacation locales - Miami, Ft. Lauderdale, Naples, Ft. Myers, San Diego, Hilton Head. Again, if you are looking for a second home that you might rent out for the next 5 years and perhaps move to in retirement, why not get a great deal today. So, why are buyers still on the sidelines? Fear ... fear that they will lose their job in the near term. That tends to keep buyers' hands in their pockets and their hands holding tightly on their pocketbook. Fear that "things will get worse". A record level of cash is on the balance sheet of financial institutions right now. They are fearful to lend. A record amount of cash was pulled out of the stock market last fall and remains on the sidelines. Yes, a stock can go to $0 - you can lose all of your money. Housing will never go to zero as long as there is a piece of land, but recent history has shown that you can lose part of your investment. What if I buy a house and lose my job? What if I have to move to take a new job? What if I can't sell my house for what I paid for it when I have to move? These are real fears. What will restore housing? In some markets, there is stability. There are buyers because the employment picture is relatively stable. The other pieces are generally there ... mortgage rates, housing inventory, desirable neighborhoods. We need to end the cycle of fear. Buy a house. |
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