Real Estate Buyer’s Market

It just keeps getting better for property buyers in America. Here’s a quick time line of my observations:

  • Spring 2007: I found that all the horrible press on subprime loans and predictions of a crashing real estate market had not translated into bargains. In Southern California, multiple buyers were competing on homes of interest to me.

    I wrote to subscribers in May 2007:

    The housing market has supposedly been primed for a crash since 2004. Rather than crashing, though, prices have been rising. Every homeowner I spoke with [in Los Angeles] says they expect the value of their home to begin shrinking any day now, and that they’ve been expecting that for more than two years.

    There’s a disconnect between what the media is reporting and what’s actually happening. It’s as if they’ve run the “collapsing bubble” story so many times that they believe it themselves and keep ignoring numbers to report it again. Meanwhile, the real estate buyer sees it nowhere.

    Just this week, the L.A. Times reported that “Home Sales Hint at Longer Slump Ahead,” as if a slump were already underway. The paper reported that home sales in April “plunged to a 12-year low, suggesting that the region’s real estate slump is far from over.”

    Yet, in the same story, we find evidence that no slump has even begun. “Prices were up overall, rising 6.1% from a year earlier to a median of $505,000,” wrote Times Staff Writer Annette Haddad.

    Huh? Rising prices do not happen in a slump. Prices go down in a slump. When was the last time you read about the stock market that “the Dow slumped to a new high this week”? Never. Prices “slump” lower and “surge” higher.

    – Read the entire article posted May 28, 2007

  • Summer 2008: Real estate prices had come down significantly, but banks were not yet eager to close short sales. They were still turning down offers for much less than listing prices.

  • October 2008: Prices fell more and a panic finally took hold of banks. Short sale activity increased and banks started to want to get REOs off the books right away.

This is the moment we’ve been waiting for. A lowball offer made on a property I’m buying in Colorado was refused in August. I made the exact same offer late last month and it was not refused. It’s currently being reviewed by the bank’s Short Sale Dept., a busy desk these days.

Meanwhile, mortgages look intent on getting below 6%. They’re not there yet, but they’re heading that way. According to this morning’s read at Bankrate.com, the average 30-year fixed rate was 6.46% last week and is 6.03% now.

It is rare to get both low prices and cheap interest rates at the same time. This could be the best real-estate buying opportunity of our lifetimes. I would say real estate is a better buy than the stock market, and that’s saying a lot because an enormous amount of risk has been plunged out of stocks.

If you have cash to invest and were planning to put it all into stocks at the right moment, I suggest taking at least some of it to make a 20% down payment on a property that you can rent out. You’ll receive rental income while watching the capital appreciation happen like magic in the background.

Returns will vary by region, of course, but in both Colorado and Southern California I’m finding homes that will rent for more than the mortgage, insurance, and taxes on their current low prices. Many will double or triple in value over the next ten years, and the rental market will rise as mortgage payments at low interest rates stay constant and taxes remain low because they started from the low purchase price.

It’s hard to go wrong in real estate these days.

I suggest skipping online sites and going straight to local banks to see their REO book and short sale listings. Most internet databases are not worth your time. The data is often wrong and the pictures misleading, creating a low signal-to-noise ratio. One that might be worth a look is Cyberhomes.com.

Another tip: bring proof of cash to the bank. On the morning you go to browse an REO book or list of short sales, print a statement from your bank’s online portal showing that you have more than enough for a 20% down payment on properties of interest. When the bank officer asks about your time frame, slide the print across the desk and say, “Immediate. I want to buy as badly as you want to sell.”

Seriousness is taken seriously.

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