Everything in life seeks equilibrium and balance. It doesn’t matter what it is... everything seeks balance. If you work too hard you will get sick and you will be forced to rest. If you don’t eat you get hungry. When the government manipulates affordability in housing markets it throws off the true market equilibrium. Fundamentally the government was attempting to create a new equilibrium where are greater percentage of the population were home owners. We now know that though well intentioned this push had severe consequences.
I have written a fair amount on this subject before. However the attached article is a compelling reminder that false supports are preventing us from finding the equilibrium. Letting the market correct will bring real stability back into the market. Yes, prices will likely be lower but the footing will be firm. False supports will continue to promote indecision in the marketplace and the reality is that the market is seeking a true equilibrium in spite of these false supports... hence the drop in sales numbers.
See the URL below:
http://money.cnn.com/2010/08/31/real_estate/federal_housing_programs.fortune/index.htm?section=money_realestate&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fmoney_realestate+%28Real+Estate%29
Desk of Zach Trailer
By Lanny Berg
Tuesday, August 31, 2010
Wednesday, August 25, 2010
The 8K Tax Credit Aftermath...
Those who patiently waited are finding a tremendous buying opportunity, A few months ago I wrote about how those who did NOT buy during the First Time Home Buyers Tax Credit might be the ones who end up benefiting the most... Well, it looks like that was an accurate assessment. The tax credit has expired and home sales are dropping significantly. The reality is that I would rather get 40K off of a 400K home than pay 400K and get an 8K tax credit. Over 2 million first time home buyers jumped in and bought new homes during this subsidized period. For those that did buy it probably wasn’t a bad decision but it demonstrates the real weakness that exists in the market and that people were focused on the wrong thing; a tax credit vs. the actual value of the housing market. Those who waited will now have less competition as there are fewer people in the market generating less demand. There is the additional benefit that they are actually benefiting from historically low interest rates. Now really is the time to buy...
By Lanny Berg
Desk of Zach Trailer
By Lanny Berg
Desk of Zach Trailer
Friday, August 13, 2010
Uncertainty is a strategic advantage...
I have written many times that California is unique and amazing when it comes to real estate cycles. With interest rates fantastically low and housing prices low as well (specific to local markets) in some cases it is indeed becoming less expensive to buy than to rent. This is a pure cost analysis and is more directed at entry-level properties but non-the-less it is happening. People wonder is “now a good time to buy”? Though no one can predict what the future will bring if you have the capability would you rather be in the market to buy now or back in 2007? >Warren Buffet is famous for saying be greedy when others are fearful and be fearful when others are greedy…
Desk of Zach Trailer
by Lanny Berg
Desk of Zach Trailer
by Lanny Berg
Monday, June 28, 2010
The Tax Credit is Ending... Now What?
A $8,000 Federal tax credit to first time home buyers resurrected a housing market across the country. California added it's own home buyers tax credit that had two buckets... one bucket was for the first time home buyer and the other bucket was for people purchasing new construction. Potentially this meant up to $16,000 in tax credits available to the first time home buyer in California. With the Federal tax credit no longer available and the California money running out people are wondering what is going to happen. Though no one exactly knows I think this there is a possibility that this creates an unbelievable opportunity for the first time home buyer.
I was talking with a potential client last night and we are both economic theorists. I told him that I thought it is possible that he isn't missing out at all. Theoretically speaking if you are competing against other home buyers during the period in which everyone is trying to get the tax credit than this is keeping pressure on pricing because demand is up. If demand retracts after the expiration of the credit and it allows you to negotiate a better deal than it may have been a good thing to wait.
Again this is theory:
Let's just say you could buy a great home for $600,000 home pre-expiration of the credit. Tax credit savings = $16,000.
Let's speculate that the same property at some point later this year after the expiration of the credit the same house could be negotiated because of a lack of competition in the market down to 550K. This 50K savings over the life of the loan is equivalent to $120-130K in actual savings. The argument could be made that if you took the 16K and invested it that that might be a larger return at the end of the day but the reality is that most people will not do this. Instead the potential savings negotiated off the purchase price is real money today in saving you on your monthly payment as well as saving over the life of the loan.
As always… Do your due diligence.
From the Desk of Zach Trailer
By Lanny Berg
I was talking with a potential client last night and we are both economic theorists. I told him that I thought it is possible that he isn't missing out at all. Theoretically speaking if you are competing against other home buyers during the period in which everyone is trying to get the tax credit than this is keeping pressure on pricing because demand is up. If demand retracts after the expiration of the credit and it allows you to negotiate a better deal than it may have been a good thing to wait.
Again this is theory:
Let's just say you could buy a great home for $600,000 home pre-expiration of the credit. Tax credit savings = $16,000.
Let's speculate that the same property at some point later this year after the expiration of the credit the same house could be negotiated because of a lack of competition in the market down to 550K. This 50K savings over the life of the loan is equivalent to $120-130K in actual savings. The argument could be made that if you took the 16K and invested it that that might be a larger return at the end of the day but the reality is that most people will not do this. Instead the potential savings negotiated off the purchase price is real money today in saving you on your monthly payment as well as saving over the life of the loan.
As always… Do your due diligence.
From the Desk of Zach Trailer
By Lanny Berg
Tuesday, June 22, 2010
A dynamic market
For years I have explained to people that housing prices and the run-up that ensued functioned similarly to the bond market. How so? For simplicity sake lets say a historically a competitive interest rate has been in the 10% range. If rates drop to 5% this essentially doubles your purchasing power. Add in fundamentally unsound loan products, ridiculously low teaser rates, and this fueled appreciation in the housing market. A person able to afford a 200K home in 2000 could now afford a 400K+ home.
Today we have seen a price correction in some places of up to 50%. Interest rates are hovering in the 5% range, which creates a very interesting situation. 5% is historically low and most believe that the days of this rate are numbered. Knowing that 5% is historically low I did a quick calculation to see the impact of interest rates relative to housing prices.
Loan Term Rate Pmt
100K 30yr 5% $537
90k 30yr 6% $540
When interest rates rise 1%, this will offset a 10% further decline in housing prices. This 1 pt. increase is actually a 20% increase in rates.
It would be easy to make the argument that an increase in rates will cause another leg down in the market. However, in resilient markets such as the Bay Area I believe there is greater risk of interest rates affecting affordability and so long as you are planning to be here for the long term the data suggests that this is an extraordinary time to buy and have an affordable monthly payment.
As always, do your due diligence. There are a lot of great properties out there!
From the desk of Zach Trailer
by Lanny Berg
Today we have seen a price correction in some places of up to 50%. Interest rates are hovering in the 5% range, which creates a very interesting situation. 5% is historically low and most believe that the days of this rate are numbered. Knowing that 5% is historically low I did a quick calculation to see the impact of interest rates relative to housing prices.
Loan Term Rate Pmt
100K 30yr 5% $537
90k 30yr 6% $540
When interest rates rise 1%, this will offset a 10% further decline in housing prices. This 1 pt. increase is actually a 20% increase in rates.
It would be easy to make the argument that an increase in rates will cause another leg down in the market. However, in resilient markets such as the Bay Area I believe there is greater risk of interest rates affecting affordability and so long as you are planning to be here for the long term the data suggests that this is an extraordinary time to buy and have an affordable monthly payment.
As always, do your due diligence. There are a lot of great properties out there!
From the desk of Zach Trailer
by Lanny Berg
Tuesday, June 1, 2010
Median Prices are Rising
The headline from the article link below states "Median Price Rises in nearly 60 percent of US metropolitan areas in first quarter".
This is an exuberant headline that would lead one to believe that the macro real estate market is out of the woods and on the road to recovery. We all hope this is the case but we will only have an idea as to the true health of the national market after we have 3-4 quarters with successive gains without the Government's underlying support mechanisms in place. First time home buyers have accounted for a huge percentage of transactions spurred on by huge incentives. Also, the mortgage market has benefited from a plummeting Euro in the last month.
There are some good signs in the market but I think it is a bit early to say that the broad market is out of the woods and that we are in full recovery mode. So, how do you know whether to buy or not? It needs to make sense... what does that mean? It means that you're criteria alone will determine if it is a good time to buy. The reality is that now is a much better time to buy than 4 years ago if you are gainfully employed. Generally, your dollar goes a lot farther now than it did then...
http://www.fox59.com/business/sns-ap-us-home-stretch,0,1815580.story
From the desk of Zach Trailer
This is an exuberant headline that would lead one to believe that the macro real estate market is out of the woods and on the road to recovery. We all hope this is the case but we will only have an idea as to the true health of the national market after we have 3-4 quarters with successive gains without the Government's underlying support mechanisms in place. First time home buyers have accounted for a huge percentage of transactions spurred on by huge incentives. Also, the mortgage market has benefited from a plummeting Euro in the last month.
There are some good signs in the market but I think it is a bit early to say that the broad market is out of the woods and that we are in full recovery mode. So, how do you know whether to buy or not? It needs to make sense... what does that mean? It means that you're criteria alone will determine if it is a good time to buy. The reality is that now is a much better time to buy than 4 years ago if you are gainfully employed. Generally, your dollar goes a lot farther now than it did then...
http://www.fox59.com/business/sns-ap-us-home-stretch,0,1815580.story
From the desk of Zach Trailer
Monday, May 24, 2010
DO AS I SAY... NOT AS I DO
DO AS I SAY... NOT AS I DO
There are many things about real estate that are great... one of which is that it never gets dull. With the boom everyone was a genius. With the bust everyone is pointing fingers at who's fault it was. Though banks had a big role in feeding the bubble it was Government policy or lack there of that created the ingredients for the bubble to form. Government policy encouraged home ownership to those who couldn't afford it and Wall Street in their creative capacity figured out how to create the financial products that would keep the supply of investment money coming in to fund the loans.
Government is now attempting to throw a lifeline to struggling homeowners and "rescue" them by creating programs and policies encouraging banks to offer loan modifications programs to struggling homeowners.... except for government held mortgages of course. An interesting read from the link to the article below.
http://money.cnn.com/2010/05/14/news/economy/fannie_freddie_principal_reduction/index.htm?section=money_realestate&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fmoney_realestate+%28Real+Estate%29
From the desk of Zach Trailer
There are many things about real estate that are great... one of which is that it never gets dull. With the boom everyone was a genius. With the bust everyone is pointing fingers at who's fault it was. Though banks had a big role in feeding the bubble it was Government policy or lack there of that created the ingredients for the bubble to form. Government policy encouraged home ownership to those who couldn't afford it and Wall Street in their creative capacity figured out how to create the financial products that would keep the supply of investment money coming in to fund the loans.
Government is now attempting to throw a lifeline to struggling homeowners and "rescue" them by creating programs and policies encouraging banks to offer loan modifications programs to struggling homeowners.... except for government held mortgages of course. An interesting read from the link to the article below.
http://money.cnn.com/2010/05/14/news/economy/fannie_freddie_principal_reduction/index.htm?section=money_realestate&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fmoney_realestate+%28Real+Estate%29
From the desk of Zach Trailer
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