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March 2008

The Sky Is NOT Falling!

Posted at 3:33 AM, Mar. 10, 2008

While we continue to hear "bad" news about the economy, it's important to remember that all real estate is local.  We are bombarded day in and day out about the state of the economy, the rising foreclosure rates, rising unemployment, and rising delinquencies in other consumer debt.  I expect to see Chicken Little on the evening news proclaiming "The sky is falling! The sky is falling!"  Well, no, it is not.

To be sure, the economy is not as heated as it was just 2 years ago.  That is actually good news.  There are often very great gains that follow periods of slow or stagnant growth.  If you recall, several years ago, the pundits were forecasting the end of the dot.com markets.  Yes, those stocks and companies did take some hits only to rebound with even greater gains.

The real estate market goes through similar peaks and valleys.  If you take to heart everything you hear and read you might assume that the Richmond Area is experiencing a downturn.  It isn't.  The market is merely balancing itself.  For the most part, resale values are holding steady with only the slightest decreases in average sales prices.  There are good values to be found for buyers.  Sellers can feel assured that if their homes are priced right for the home's condition and the existing market, these homes can sell at very good prices in a reasonable amount of time.

On Thursday, the Department of Housing and Urban Development published new conforming loan limits that take them above $417,000, to a maximum of $729,750, depending on the median home price in a market. HUD also implemented temporary increases in FHA loan limits. Based on the area's median home price in the Richmond Area the new conforming limit has risen to $528,750.  These new limits should encourage buyers who were concerned about the higher "jumbo" rates.  In addition, existing home loans can be refinanced up to the new limits.   It's important to remember, though, that these new loan limits expire at the end of 2008.

So, what are you waiting for?  If you want to sell, then get your house in "ready for market" condition, and get it on the market now.  If you want to buy, get your credit in shape, call a lender to obtain a pre-approval letter, and start shopping!

If You Delay Buying Now You May Pay The Price Later

Posted at 2:01 AM, Mar. 3, 2008

While it is possible that home prices could drop, in the Richmond Metropolitan Area, we are much less affected by the current downturn than in the rest of the state or the rest of the country, even in the face of home sales being down over the same period in 2007;.  It is more conceivable that any decreased prices will more likely be accompanied by increased financing costs due to rate cuts by the Fed. Yes, that's right - when the Fed drops rates, sometimes, and often. mortgage rates actually go UP.  What this could mean to prospective buyers is that any money they think they are "saving" on paying "less" for a home by waiting a few months will be offset by the buyers ending up with a higher interest mortgage rate making “playing the waiting game” or "timing the market" a useless endeavor.

This rate increase isn’t just speculation. Just a couple of weeks ago, in early February, the fixed mortgage rate jumped a full half-percent, making it the fastest rate increase in 20 years.

The data below based on a recent Time Magazine article demonstrates how even as home prices may drop, monthly mortgage payments basically stay the same; due to increased interest rates:

Scenario 1:
Prices decrease by 5% and interest rates increase by 0.5%

Scenario 2:
Prices decrease by 10% and interest rates increase by 1.0%
Today Scenario 1 Scenario 2
Home Price
$218, 900 Home Price: -5%
$207,955 Home Price: -10%
$197,010
Interest Rates
6.04% Interest Rates: +0.5%
6.54% Interest Rates: +1.0%
7.04%
Monthly Payment
$1,054 Monthly Payment
$1,056 Monthly Payment
$1,053
Table: Kadlec, Dan. "Ignore the Headlines!" Time 25 February 2008

The moral of the story???  Waiting to buy does not guarantee that you have made a better investment.  A rise in interest rates can erase any advantage you might have gained by waiting.  Remember, real estate is a long term investment.