In some areas the real estate market is “hopping”. New homes are being sold faster than they can be built and some new homeowners are purchasing great properties for a lower price than five years ago and with a very low interest rate. That’s making today’s buyers feel more secure about their investment.
If you’re a buyer watching the real estate market and wondering if it’s poised for a very strong recovery, here are a few things to think about.
The already low interest rates look like they’ll be around for a while longer. According to the Federal Reserve, more mortgage-backed securities and bonds will be purchased. Currently its purchasing about $45 billion a month. What this could mean is that interest rates could go even lower. Keeping the interest rates low is a strategy to encourage people to enter the real estate market again.
Even though in some areas there have been reports of bidding wars, some buyers still believe the market is somewhat unrealistically high. They’re, of course, hoping for lower prices. As buyers wait things out that causes more stress for sellers who are in a precarious position of potentially missing a mortgage payment on an already “underwater” home.
On the rise are home modifications and short sales. Banks and mortgage servicers are realizing it’s better to work things out together than foreclose. Government laws are also helping homeowners in crisis. The law that allows tax relief for mortgage debt forgiveness (from homes that fell victim to short sales, foreclosures, or “phantom” income on loan modifications) has been extended another year. Meanwhile banks are still taking a hit from the government. It’s expected that billions of dollars of fines, fees, and settlements are still coming. Financial practices are being scrutinized and a federal watchdog group created in 2010 is ensuring legal financial practices are used.
Trouble for some is success for others. Right now, the temptation is great for buyers interested in some deep discounts. According to RealtyTrac, the online entity that tracks foreclosed properties, homes sold in foreclosure nationwide were, on average, 39 percent lower than conventional sale prices during the fourth quarter. Some markets offered even greater discounts on home prices. Short sales also offered a good price for buyers, averaging 23 percent below market.
However, if you decide to purchase a foreclosure or a short-sale home, you should know that these homes may be in poor condition. If the property is purchased by a buyer who wants to live in the home, this can be challenging. Getting through the laundry-list of repairs will require some extra income other than that used for the downpayment of the home. But you could get a very good price if you’re willing to live with some of the home’s issues.
Some of the areas that often top the list of necessary repairs for these types of homes are in the plumbing, heating, and air conditioning systems. Also, damage to the roofs, ceilings, and walls may be from the property being vacant for a long time and/or vandalized (in some cases by the angry former owner).
If you can find a home at a discounted price and you have the ability, patience, and money to do the repairs, this is a very good time for you to start your hunt. Just be sure to have the home inspected carefully and completely understand the condition of the home that you are buying.
by Phoebe Chongchua