Wednesday, April 24, 2013 - Article by: NvMortgageMan - New American Mortgage -
This latest report by Megan Hopkins from HousingWire spells out the continued challenges of being a buyer in today's once-again overheated real estate market. In a discussion last night with a fellow home mortgage professional, we both agreed that aside from having short-term memory issues, the buyers are running hand-in-hand towards another cliff, blindly bidding up houses past their value. As a mortgage professional and a self-professed Uncertified Financial Planner (!), I make 2 recommendations: (1) think hard about paying more for real estate (or anything) beyond it's value and, (2) Make sure you are in a cash position to make up the difference between the selling price and the appraised value, as that's what you'll need to make the sale happen (if you don't get beat out by a cash offer).
The challenge also increase as many former homeowners who were sidelined due to a short sale or foreclosure are now getting back in the mix. That will add additional upward pressure on an already tight resale market, though builders in many areas are picking up their hammers again as once empty lots are sporting new homes. Many of these builders are able to keep their costs of the home down due to existing lot inventory that was written off years ago so their only true costs are vertical (building the actual house). That inventory is quickly being exhausted, which, again, will precipitate a rise in home prices.
My recommendation to to financial professionals are Realtors is to have their clients that are in equity positions in their current residents consider selling their properties are currently over-inflated prices and move on. This is a key proposition for boomers considering downsizing their home to a more affordable area (like Northern Nevada) so they can enjoy a lower cost of living and a higher quality of life (and still be close to the kids and grand kids!).
Spring has already proven to be a success for the housing industry. In its latest report, CoreLogic noted that there are a number of factors that could help strengthen the housing sector even more, but homebuyers are still facing major obstacles standing between themselves and homeownership.
Right now, sellers are facing the challenge of owning enough equity in their existing home to have a strong enough downpayment on a home in a competitive sellers' market. Not only that, they need to have a qualifying credit profile in a tight lending industry.
Luckily, many of those markets that were hit the hardest have had strong price improvements in 2012, removing some of the insufficient equity constraint. With more equity in their hands, owners are putting their homes up for sale and contributing to a tight housing inventory, CoreLogic writes, then transitioning into the buyer role once their home has sold.
Not only that, increasing equity is reviving trade-up buyer demand, creating a healthy housing cycle.
Coinciding with this newfound equity is increased investor activity, which is expecting to continue driving demand throughout the year.
It is anticipated that the first-time homebuyer will also make a stronger appearance in the near future. Today's household formation has many potential first-time buyers running to rentals, but CoreLogic notes that is part of the cycle.
The report's author, Mark Fleming, writes, "As new renter-households are formed, rental prices are bid up, making the prospect of owning more attractive to existing renters."
Click below to see the latest housing summary.
Fleming notes that the expectation this spring is that more renters will take advantage of historically low interest rates and low home prices and become first-time homebuyers.
While the economy is getting back on its feet, slowly but surely, the housing sector is establishing itself as a substantial contributor to this improvement. With equity becoming more sufficient, creditworthiness seems to be one of the only obstacles for potential homebuyers.
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