Guess Which Day Not to Close??
How much of the strength in the lower end of the housing market is due to the $8,000 tax credit being dangled by the government? The credit, available to first-time home buyers, expires Nov. 30.
We'll see in the next 30-60 days.
That's because anyone who wants to close by Nov. 30 had better get going now.
Tick . . Tick . . Tick
Assuming 45-60 days to close, and another 45-60 days to identify a home and negotiate a deal -- you needed to start looking . . . yesterday (actually, 3 days ago, or Aug. 15).
Given the seasonality in the Twin Cities market, you'd expect a drop-off in activity as the holidays approach.
However, my guess is there will be a spike mid-Fall, with Dec. and January even slacker than usual.
Manhattan vs. Minneapolis
You'd further guess that there are regional differences in the influence and timing of the $8,000 credit.
For example, it's hard to believe that a measly $8,000 tax credit is going to spur much buying in Manhattan, where the average, two-bedroom apartment still fetches something like $750k.
Another difference: punctual Midwesterners don't wait for the last minute to do things, so perhaps the spike is earlier here. In fact, judging by all the bidding wars for foreclosures, it may have already happened . . .
P.S.: And no, there are no "doctor's notes" or other sanctioned excuses. If your Nov. 30 closing (or 27th -- the 28th and 29th are weekend days) has an unexpected glitch . . . you're out of luck.
Showing posts with label First-time home buyer. Show all posts
Showing posts with label First-time home buyer. Show all posts
Tuesday, August 18, 2009
Wednesday, March 18, 2009
Jeremy Grantham on Market Timing
"Waiting for the Light"
Grantham, who manages $85 billion and is one of the most astute investors around, was actually talking about stocks, but his advice is equally applicable to the housing market.
In the same piece, he also makes two other indisputable points: 1) you'll never catch the low -- by the time it's clear that that has happened, prices will already be higher; and 2) market commentary will be most negative at the bottom. So if you listen to it, you'll either do the wrong thing, or nothing at all.
Interestingly, he rejects conventional wisdom about how to get (back) into a market that has fallen dramatically and still looks risky: 'Since every action must overcome paralysis, what I recommend is a few large steps, not many small ones.'
Prospective home buyers will definitely relate . . .
"Be aware that the market does not turn when it sees light at the end of the tunnel. It turns when all looks black, but just a subtle shade less black than the day before."
--Jeremy Grantham, "Reinvesting When Terrified"; (March 2009 Newsletter)
Grantham, who manages $85 billion and is one of the most astute investors around, was actually talking about stocks, but his advice is equally applicable to the housing market.
In the same piece, he also makes two other indisputable points: 1) you'll never catch the low -- by the time it's clear that that has happened, prices will already be higher; and 2) market commentary will be most negative at the bottom. So if you listen to it, you'll either do the wrong thing, or nothing at all.
Interestingly, he rejects conventional wisdom about how to get (back) into a market that has fallen dramatically and still looks risky: 'Since every action must overcome paralysis, what I recommend is a few large steps, not many small ones.'
Prospective home buyers will definitely relate . . .
Friday, February 27, 2009
Today's Buyer: A Composite
What Do Today's Home Buyers Look Like?
Contrary to popular opinion, home buyers are not an endangered (or extinct) species. Two of my clients just purchased homes, and three more are actively looking.
So what generalizations can you make about them?
They have many (if not all) of the following four attributes:
One. First-time Buyers.
Yes, it's a lot easier to buy if you don't need to sell first.
If you currently own a home and want to buy another, you must either: 1) qualify to own two homes at once, which means an interval of "doubled-up" mortgage payments, utility bills (even if one set is lower because you're not living there), etc.; or 2) make a contingent offer.
That means your offer is contingent on getting a signed Purchase Agreement on your current home, typically within 90 days.
While more Sellers are ok with that in today's market, others want the certainty of a done deal, even if it means accepting a lower price.
Of course, another reason buying is easier for first-timer's is all the incentives being thrown at them.
I'll leave a comprehensive list of programs and incentives for another post, but suffice to say, if you're a first-time buyer and can't find a carrot (or several) for buying right now . . . you're not looking very hard.
Two. Long-term orientation.
I think it's safe to say that the people not buying now are focused on the (downward) direction of home prices.
Which is perfectly understandable.
No one wants to catch a falling knife, and right now the velocity of that knife is record-setting, particularly in places like Las Vegas, Phoenix, and parts of California.
By contrast, many of today's Buyers don't really care what prices will be next year or even three years from now because they're not contemplating selling then.
Rather, they see themselves as locking in their long-term housing costs at today's historically low rates. No matter what housing prices or interest rates do from here, they know that their monthly living costs will be a fixed $1,200, or $2,000 (or whatever).
Three. Financially conservative (or related to someone who is).
It's certainly possible to buy today with as little as 3% or 4% down, particularly for Buyers going through FHA. However, putting more down gives you more options: you can "go conventional" (get a regular bank-issued mortgage); it may qualify you for a lower interest rate (surprise, surprise); and it will help you avoid the various add-on fees becoming popular with lenders.
Also unsurprisingly, Buyers coming in with a heftier downpayment are more popular with Sellers, who don't have to "sweat" the Buyer's financing contingency (the vast majority of Purchase Agreements give the Buyer a prescribed amount of time to secure their mortgage).
When credit was readily flowing, Sellers really didn't care where the Buyer's money was coming from; they knew it would be there at closing. So financially strong Buyers couldn't really get much of a discount.
Today, Sellers can't take anything for granted.
As a result, financially strong Buyers -- making low-risk offers with big downpayments -- can often command a discount from nervous Sellers.
Of course, putting more down means re-paying less.
That same financial conservatism carries over into Buyers' borrowing decisions.
Forget about exotic, adjustable rate loans; they just want plain vanilla, fixed, at the lowest rate they can get.
Four. Custom wants and needs.
I just sold a 4,000 square foot duplex with prehistoric wiring (amongst many other problems) to couple moving to the Twin Cities from Chicago.
Big obstacles, right? Perhaps for many Buyers.
However, one of the clients is a potter who wants to put in a kiln. As a result, they wanted a property where they could install a high-end, 200 amp-plus electric service. Buying a "blank slate" property -- with a discount to match -- suited their needs much better than retrofitting something closer to "move-in ready" condition.
Obviously, not every client needs an in-home kiln (for some odd reason, though, I've now had three clients who have!)
However, plenty of Buyers are looking for homes that they can put their own "stamp" on, whether it means creating a new Kitchen, opening up walls to create a more open floor plan, or simply updating to their taste.
For the first time in a long while, such homes are in plentiful supply, at prices that are likely to prove good, long-term values.
Contrary to popular opinion, home buyers are not an endangered (or extinct) species. Two of my clients just purchased homes, and three more are actively looking.
So what generalizations can you make about them?
They have many (if not all) of the following four attributes:
One. First-time Buyers.
Yes, it's a lot easier to buy if you don't need to sell first.
If you currently own a home and want to buy another, you must either: 1) qualify to own two homes at once, which means an interval of "doubled-up" mortgage payments, utility bills (even if one set is lower because you're not living there), etc.; or 2) make a contingent offer.
That means your offer is contingent on getting a signed Purchase Agreement on your current home, typically within 90 days.
While more Sellers are ok with that in today's market, others want the certainty of a done deal, even if it means accepting a lower price.
Of course, another reason buying is easier for first-timer's is all the incentives being thrown at them.
I'll leave a comprehensive list of programs and incentives for another post, but suffice to say, if you're a first-time buyer and can't find a carrot (or several) for buying right now . . . you're not looking very hard.
Two. Long-term orientation.
I think it's safe to say that the people not buying now are focused on the (downward) direction of home prices.
Which is perfectly understandable.
No one wants to catch a falling knife, and right now the velocity of that knife is record-setting, particularly in places like Las Vegas, Phoenix, and parts of California.
By contrast, many of today's Buyers don't really care what prices will be next year or even three years from now because they're not contemplating selling then.
Rather, they see themselves as locking in their long-term housing costs at today's historically low rates. No matter what housing prices or interest rates do from here, they know that their monthly living costs will be a fixed $1,200, or $2,000 (or whatever).
Three. Financially conservative (or related to someone who is).
It's certainly possible to buy today with as little as 3% or 4% down, particularly for Buyers going through FHA. However, putting more down gives you more options: you can "go conventional" (get a regular bank-issued mortgage); it may qualify you for a lower interest rate (surprise, surprise); and it will help you avoid the various add-on fees becoming popular with lenders.
Also unsurprisingly, Buyers coming in with a heftier downpayment are more popular with Sellers, who don't have to "sweat" the Buyer's financing contingency (the vast majority of Purchase Agreements give the Buyer a prescribed amount of time to secure their mortgage).
When credit was readily flowing, Sellers really didn't care where the Buyer's money was coming from; they knew it would be there at closing. So financially strong Buyers couldn't really get much of a discount.
Today, Sellers can't take anything for granted.
As a result, financially strong Buyers -- making low-risk offers with big downpayments -- can often command a discount from nervous Sellers.
Of course, putting more down means re-paying less.
That same financial conservatism carries over into Buyers' borrowing decisions.
Forget about exotic, adjustable rate loans; they just want plain vanilla, fixed, at the lowest rate they can get.
Four. Custom wants and needs.
I just sold a 4,000 square foot duplex with prehistoric wiring (amongst many other problems) to couple moving to the Twin Cities from Chicago.
Big obstacles, right? Perhaps for many Buyers.
However, one of the clients is a potter who wants to put in a kiln. As a result, they wanted a property where they could install a high-end, 200 amp-plus electric service. Buying a "blank slate" property -- with a discount to match -- suited their needs much better than retrofitting something closer to "move-in ready" condition.
Obviously, not every client needs an in-home kiln (for some odd reason, though, I've now had three clients who have!)
However, plenty of Buyers are looking for homes that they can put their own "stamp" on, whether it means creating a new Kitchen, opening up walls to create a more open floor plan, or simply updating to their taste.
For the first time in a long while, such homes are in plentiful supply, at prices that are likely to prove good, long-term values.
Tuesday, January 27, 2009
Home Buyer Incentives Multiply
"$5,000 here, $10,000 there"
To paraphrase a *famous quote, "$5,000 here, $10,000 there, and pretty soon you're talking about real money."
In this case, the money consists of incentives offered to first-time home Buyers.
New home builders have been offering Buyer incentives for quite some time (upgraded finishes, discounted loans, plasma TVs, etc.). However, now government is joining the party in a serious way.
At the federal level, there is increasing speculation that the $7,500 repayable tax credit now offered Buyers will simply become a straight credit -- no repayment required.
Locally, a number of municipalities are dangling increasingly fat incentives to first-time Buyers to tackle foreclosed and abandoned homes.
The leader so far appears to be Brooklyn Center, offering a $10,000 package to qualifying Buyers.
Do I hear $15,000??
*The original quote was from Senator Everett Dirksen, whose decimal place was actually billions.
To paraphrase a *famous quote, "$5,000 here, $10,000 there, and pretty soon you're talking about real money."
In this case, the money consists of incentives offered to first-time home Buyers.
New home builders have been offering Buyer incentives for quite some time (upgraded finishes, discounted loans, plasma TVs, etc.). However, now government is joining the party in a serious way.
At the federal level, there is increasing speculation that the $7,500 repayable tax credit now offered Buyers will simply become a straight credit -- no repayment required.
Locally, a number of municipalities are dangling increasingly fat incentives to first-time Buyers to tackle foreclosed and abandoned homes.
The leader so far appears to be Brooklyn Center, offering a $10,000 package to qualifying Buyers.
Do I hear $15,000??
*The original quote was from Senator Everett Dirksen, whose decimal place was actually billions.
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