I want to buy now but I’m afraid that prices may go down further and I don’t want to miss a better deal later. What should I do?
Answer: You’re not the only one. Many prospective buyers are “sitting on the fence” and not buying now for this very reason. But, more and more people are pulling the trigger. Here’s why.
- The United States housing market just wrapped up its best season in three years and prices are up 3.6% since April.
- Talk of a new “wave” of inventory about to hit the market may be exaggerated. We believe that the vast number of homes that are expected to come to the market as foreclosures are already on the market as short sales. This means that the majority of these homes are already counted and will not contribute to a flood of new inventory. “Authentic new “supply” (housing starts) currently hitting the market is actually quite low. In fact, it hasn’t been this low since at least 1959 (and probably a lot longer, but we don’t have data prior to then). This year, builders will begin construction on somewhere around 620,000 units, a number that’s about 32% below the old record low of 906,000 set–you guessed it–last year” (Home Prices: Sustainable Bottom or Dead Cat Bounce? By: Morningstar Monday, October 12, 2009 7:38 PM).
- Most of the urban condos built early in the boom already “busted” meaning they sold as short sales or foreclosures. In many of these buildings we are seeing price stabilization and/or price gains.
- In some urban condo communities sales prices are low enough for investors to buy and rent the property out and net a positive cash flow. We have seen an absolute flurry of buyers in some of these recovering buildings. Competition is hot for the right condo in the right community.
- We expect interest rates to go up and soon for two reasons. First, it is very likely that the US will experience high inflation in the not too distant future. Interest rates go up during times of inflation. Secondly, interest rates are currently artificially low due to US government influence. Investors (other than the US government) are not buying mortgage backed securities because the rate doesn’t support the risk. In other words would you yourself loan money today for someone to buy real estate if you were only going to earn 4.5 or 5% for the next 30 years? Probably not. But that’s the going rate today. Would I feel better about loaning money if I was going to earn 8 or 9 or 10%? Probably. The problem is that mortgage interest rates are half that. So “investors” like me aren’t loaning money for such purchases. The US government can not loan money at these low rates 4.5 to 5% forever. When the US stops loaning money rates will have to go up enough to attract other investors. So, expect interest rates to go up for this reason and with the coming inflation.
- We believe that there is pent up demand for properties. In many cases people stopped buying in 2005 or so. Those folks have been sitting on the sidelines waiting for the dust to settle before they will buy. However, there’s a point where people don’t want to wait, or can’t wait, any longer (i.e. pent up demand) and they buy. There is strong evidence to suggest that things are getting there. In downtown Phoenix, condo sales far exceed the supply (see chart below). You’ll see that in 2008, inventory (the number of condos for sale) far exceeded the number of buyers so prices dropped and dropped and dropped. In February 2009, the line representing inventory and the line representing the number of buyers intersected meaning that the numbers of buyers and the numbers of sellers were about equal. Since then, dramatically more people are buying than people are selling.
Gang, there are always exceptions to any rule. But it is our opinion that there are great deals out there for those who know where to look AND who meet certain other criteria. If interest rates do go up, and I strongly believe they will, then you might want to take advantage of today’s low rates, take advantage of the many sellers who really do need to sell (at lower prices), and get yourself a great urban condo now rather than later. Don’t be one of those folks who years from now say “boy I really wish I had bought when I had the chance.” Call us at We Know Urban Realty and get our help. We don’t sugar coat stuff and we know where the deals are and can show you why they are good deals.
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