Home Ownership 411

Many would-be homebuyers seem to be standing on the sidelines, watching to see just how far home prices will drop.  According to Standard & Poor’s/Case-Schiller Home Price Index of 20 cities, housing prices for April fell for the 21^st consecutive month.  San Diego was one of the cities included in the index and here prices were down 2.6% for the month and 22.4% since April 2007.

But falling prices aren’t the only consideration.  Interest rates have been steadily increasing and are at their highest point in the last nine months.  Additionally, in reaction to the thousands of foreclosures sitting on their books and crippling the industry, lenders have tightened their criteria and raised requirements across the board.

Have we hit bottom?  This housing market slump is as bad as any since WWII, and according to experts will be longer in turning around.  Nicolas Retsinas of Harvard’s Joint Center for Housing Studies, observed in a report issued on Monday that housing markets “historically recover only after the economy has entered a recession and a combination of falling mortgage interest rates and house prices have improved housing affordability.  It will take longer to rebound given the unusually high levels of foreclosures and constrained credit markets.  The slump in housing markets has not yet run its full course.”

So buy now, or wait?  Let’s say you buy a home today at $375,000 and have an 80% mortgage.  A $300,000 mortgage at 6.5% would be $1896.20 per month for the principal and interest payment. Now, what if you waited for a couple of months and the house price dropped to $350,000, but interest rates continued to increase?  The same 80% mortgage would be $280,000 but assuming an interest rate of 7.25% the monthly principal and interest payment would be $1910.09.  So you would owe less in principal, but quite possibly could be paying more on a monthly basis.  $14.00 a month difference isn’t such a big deal, but over the life of loan you would pay $407,637.34 in finance charges on the $280,000 loan, and $382,636.71 on the larger $300,000 loan.  That’s $25,000 more on a smaller loan, but at a higher rate.

So the answer to buying now or waiting isn’t easy without a crystal ball.  However, as interest rates continue to rise waiting for the price to fall another $10,000 – $25,000 may not be the best decision after all.

Foreclosures….  seems like a great way to steal a deal, but there is an interesting sidebar called a short-sale.  At the beginning of the value dropping avalanche from the heights, foreclosures were a sure way to bid low and come away with a great deal.  But then came the tidal wave of short sales as all of the ARM mortgages readjusted.  Combine the two and we’re all spinning around in a nasty market where getting deals closed has become a time-robbing, patience-testing experience.

What we’re seeing today in San Diego County is a high percentage of short-sales.  Short-sales are the dread of buyer’s agents as it could take over 3 months to learn whether or not the lender will accept the short-sale offer….3 months!  Who wants to put an offer on that property?  The surprising outcome of this is that foreclosures are actually more atractive and thus perhaps getting better, higher priced offers as the response time isn’t nearly as long.

After showing one of my clients close to 20 condos, she put in an offer on a foreclosure, versus some of the other choices whch were short-sales.  This came after I called all of the listing agents on the short-sale properties and recieved less than encouraging responses:  Some had not even collected the necessary documentation from the homeowner; some were stalled by overwhelmed lenders who don’t have time to review all of the short-sale applications; and some just didn’t know where to begin.

Foreclosures, priced to sell are looking good.  We made a full price offer as the foreclosure listing price was easliy $30,000 under the comps, and $190,000 under what the defaluted owner had paid just 18 months ago.  We expect a response in the next day or so.