Reading the Tea Leaves about Real Estate Market Conditions

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Homes are selling; they just aren’t selling for significantly higher prices!  Many buyers have realistically and shrewdly invested in today’s market conditions. They are betting on the future of real estate and I believe that they will do quite well.  However, I do not believe that real estate, over time will bail one out of even a lousy real estate investment. But the key word here is “time”. Surely, there will be a time in the future when buyers will again be paying at 9-11% interest rate and will refuse to believe you when you tell them that back in 2018 a 30-year mortgage rates was at 3.25%!

The more easily accessible mortgage financing becomes; the more property prices go up.  When lenders are scared or otherwise reluctant to make mortgage loans (even when they have plenty of cash to do so), funds dry up and property prices go down.  Lenders argue that they are overly cautious because: they require lower debt vs. income ratios,  they want borrowers to have higher credit scores (not a realistic when so many are without a job and can’t pay their bills),  they have too many lending restrictions on how many loans they can have and still be insured by Freddie or Fannie,  they are influenced by the HVCC (Home Valuation Code of Conduct) which results in appraisers having less motivation to turn around appraisal orders,  and then we all know that bank appraisers routinely request their appraisals to come in with lower appraisals then they should be… to provide an extra cushion of protection from lenders getting hurt too badly with foreclosures losses. Mostly, though… there is just too much lender regulation and less lender competition. Bottom line, 40-45% of mortgage loan applicants who have marginal credit ratings are getting denied!  This is the real problem with the housing market that too few people talk about!

How will we know when the market is set to start heating up again? Many think it will only happen when we see “alternative loan products” coming back… not those insured or purchased by the Federal Government! It can certainly be argued that Fannie Mae and Freddie Mae have overly-stimulated the housing market with their lender subsidy guarantees (thanks to the Greenspan years), too low deposit requirement (whatever happened to requiring at least 10-20% down?) Many predict that the flat property pricing will continue until 2015-2016.  I wish that were not the case for struggling first-home buyers, but unfortunately they are not capable of responsively buying a home now. Many have decided to rent.

For buyer-investors, times have never been better to purchase foreclosure properties via short sales, fix-up the properties and rent them for a few years and then sell them for a potential profit when market conditions have improved.  The “real estate market” will always be cyclic. Investors usually have money and can now easily obtain ridiculously-low mortgage interest rates. Of course, vacation home buyers in the upper income ranges will always have money (often cash) to spend on buying a second home. I’ve found that my Europeans and celebrity clients are excellent prospective buyers of high-end properties…especially if they are on the Maine coastline.

Some of my more savvy buyer-investors, having sons or daughters going off to college, are taking advantage of the bargain properties (located within easy-walking distance from their college) to occasion apartment living accommodations for their children and their classmate friends as a less expensive alternative to paying for them to live in the college dormitory.  The investor-parent receives the monthly rental income from their student classmate’s parents.  When they graduate, they sell the property and often realize some attractive net return on their investment! Pretty creative investing.

So, just like Warren Buffet said, “there are always investment opportunities in bad times.” Let me help you find a responsible solution for your needs.



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