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To Market, To Market

Posted on Feb 4, 2008

So, how’s the market? If there’s a defining question right now in Real Estate, that one certainly would qualify. And the undisputed champion answer would have to be: “Depends”. In the Northwest, and particularly here in the immediate shadow of employment giants Microsoft, Boeing, Weyerhaeuser, Starbucks, and the growing bio-tech industry, with players from Zymogenetics to Corixa, along with technology and gaming innovators like Microvision, Infospace & Nintendo, we have been blessed the past few years with an exceptionally strong housing market.

So, when our friends in the media start trotting out housing fears as their lead story every night, it can’t help but become fodder for watercooler and cocktail party conversations across the country. Then again, if you’ve had a marketing 101 course, you know that the top 2 attention-getting drivers for advertising are #1-Sex, and #2-Fear. Recognizing that it’s not that easy making Real Estate Sexy, it’s understandable that Fear has become the currency of choice.

Now, to get back to the question at hand- how is that market? Well, it depends on your needs- If you’re selling, be sure you need to sell. In a buyer’s market, sellers are at the mercy of the market, and we are in a buyer’s market. Now, for all you buyers out there, let’s be clear on what a buyer’s market means; contrary to popular belief, it doesn’t mean that if you wait long enough, you’ll get to buy that dream home for pennies on the dollar. A buyer’s market is also, historically, the normal condition of most housing markets. It is by definition, a balanced market one in which the available inventory is at a sustainable level relative to demand. This has typically meant an inventory between 4-6 months supply for most markets.

Again, this is a bit of a generalization, as real estate is not a portable commodity, and no 2 properties share identical characteristics- even identical floorplan homes within the same development are different with respect to the neighboring properties, including but not limited to: view, noise, corner lots, traffic speeds on the street, retention ponds, etc., all of which can play into the value of that property.

So, if you’re a seller, this is the time for a gut check, and while you’re preparing the to-do-list- be prepared to answer this: what is driving my desire to sell? If you’re wanting to move up, do you anticipate having sufficient reserves to make the move without selling? If not, how will you bridge the gap between your current home and your new one? If you were on the planet last August, you know about the Mortgage Meltdown of 2007. As a result of significant changes in the mortgage industry, many of the high-risk, easily acquired loans- namely the zero down, interest only, stated income instruments that were favorites of the speculation crowd, no longer exist. They aren’t just very difficult to get, or available to a special crowd with teaser rates- they flat out don’t exist- gone the way of the dodo, and other deservedly extinct species.

That said, if you’re looking for a respectable deal on a home for yourself, or a rental/investment property, this could be the opportunity you’ve been holding out for. With interest rates once again in the range of historic lows, home prices being clearly a negotiable point, and a wide variety of options open to the discerning buyer thanks to rising inventory, this is looking like a prime time to be in the market. However, there are those who will put the brakes on, and question why they should buy now, rather than waiting until things ‘bottom out’. My answer to this very good question is: accurately timing markets is nearly impossible for even very astute investors.

If you’re buying with the intention of being in your home for a minimum of 5 years, you greatly minimize your exposure to risk. On the other hand, if you’re still thinking this could be the year you flip your first home, motivated by the returns earned on last week’s “Flip This House” re-run, I’d be inclined to sit you down with a therapist for a quick reality session.

Keep in mind: your home is a longterm asset, not an ATM. Don’t buy with the intention of immediately refinancing- this is high-stakes gambling, with your home, credit, and financial future on the line. Paying your mortgage should be a manageable stretch relative to your income- and in most cases, it will be a stretch in comparison to what you might have paid to rent. Most people quickly learn they can qualify for significantly more mortgage than they are comfortable paying. Just because you are qualified for an amount does not mean you should spend that amount!

Review your finances with your mortgage consultant, get a good sense of what the payment will be- this should come in the form of a Good Faith Estimate – and if necessary have them run several options for you so you can see the impact various changes may have on your financial picture. Ask for APR, and full disclosure on money out of pocket, and finally, be sure you understand how much you will need to cover closing costs, as well as the distinctions between closing costs and cash required at closing.

While it’s not necessary to have every detail worked out on your financing before you start the home search, having a realistic budget can make all the difference in the location and condition of your choices. If you’re able and willing to tackle some home repair projects (again, being realistic with yourself on this is critical) you can also impact your location and pricing options.

Once you’ve got the pre-qualification out of the way, have your lender write up a letter of pre-approval. This is essentially your way of showing to a home seller that you have a bank’s blessing to put in an offer up to a certain pre-approved amount.

Now, back to the market; Rates are back in the historically low range, and the Federal Reserve could be poised to offer up yet another significant drop soon, which means your buying power increases while the long-term costs of borrowing are dropping. Whether you’re a first-time buyer, are currently a homeowner preparing to move up, or are looking to invest in your first rental property, this is what opportunity looks like.

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