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An Entry Level Housing Conundrum, How do We Fix It?

By
Industry Observer with Retired

For the better part of 18 months, the housing market has been suffering through a conundrum that few understand completely and even fewer have an answer for.Couple with paint

Many entry level condominium Sellers have their respective properties on the market and the Buyers have been observing  but not doing much with the inventory, save checking on it periodically to see what the prices are doing. Some even writing offers and being turned down by the lenders.

In the lower scale of pricing, many of the available properties are marketed as short sales and REO ( Bank Owned) properties. There are ready buyers for many of these properties but the market circumstances and lender requirements have created road blocks to their being purchased.

Many sellers with few other options, have opted to rent out the properties instead of facing the lower values or the other possibilities of short sales or forclosures. This has knocked down the percentage of owner occupied properties and many of the condominium subdivisions no longer fit with the lenders requirement for conforming loans of 60% owner occupied to qualify for 10% down payments. With that owner occupied qualifier, Buyers need to put down a minimum of 20%. At the entry level most Buyers don't have 20% to put down. So the shortage of qualified subdivisions has actually limited the qualified inventory for new 1st time Buyers. As time passes and more and more property owners find themselves upside down, this quagmire only worsens.

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Comments (10)

John Walters
Frank Rubi Real Estate - Slidell, LA
Licensed in Louisiana
Eventually they will have to start lending more if they want to make money.
Jan 26, 2008 05:17 AM
William Johnson
Retired - La Jolla, CA
Retired
Hello John, I am sure you right but someone still needs to address the core issue. Unless we can get a change, it is going to remain a key obstacle to affordable housing.
Jan 26, 2008 05:23 AM
Teri Eckholm
Boardman Realty - White Bear Lake, MN
REALTOR Serving Mpls/St Paul North & East Metro
William--Even around here where the market started slowing down awhile back we were all talking about how to get that first time buyer out. It all starts bottom up. If the starter homes sell, then the more expensive homes have a shot.
Jan 26, 2008 05:41 AM
William Johnson
Retired - La Jolla, CA
Retired
Hi Teri, I couldn't agree more. The real efforts should be to fully analyze the lower ends of the market and clear the stumbling blocks. The rest as we say will be history and the markets will more at the proper speed with out all the extra incentives. The real difficulty remains at the entry level and perhaps the next level above that. Move those and things will move across the board. Instead of the trickle down theory , we a trickle up theory to fix what ails us,LOL
Jan 26, 2008 06:00 AM
Rosemary Brooks
BMC Real Estate - 209-910-3706 - Stockton, CA
The Mother & Daughter Realty Team
I agree that it has to start bottom up.  As everything else, its starts at the bottom.  I believe they will need to get a grip on changing the lending practices instead of just talking about what needs to change.  Once they really start to make some changes, people will come out to buy.  RIght now most are afraid.  It is time for change. Not finger point, just change.
Jan 26, 2008 09:39 AM
William Johnson
Retired - La Jolla, CA
Retired

Hello Our Miss Brooks,

You are so riiht and I hope the powers that be hear you! Here is to seeing the needed changes! Cheers!

Jan 26, 2008 09:50 AM
Jim Crawford
Long & Foster - Fredericksburg, VA
Jim Crawford Broker Associate Fredericksburg VA

Good post!  Market forces eventually will correct this.  This is everyday in real estate.   For new comers in real estate, they got used to little or no money down...that was never the case before.  We are returning to more normal times, but to most in real estate...they've never been there before.  For the rest...it is business as usually.  "Been there, done that!"  LOL!

Jan 27, 2008 01:21 AM
William Johnson
Retired - La Jolla, CA
Retired
Hi Jim, It has been a long time , Welcome back. Thanks for your thoughts on this and always appreciate seeing you. The real problem out here in Southern California is the owner occupancy ration for these that are owned as condominiums. They make usually the first target for investors , especially the smaller investor. It is hurting the values because Buyers can't easily qualify, even if the loan is pre-approved. The ratio needs to be 60% owner occ and most of the entry level at least are much less because of the investor influence in also wanting them at a discount.
Jan 28, 2008 08:10 AM
Kaye Thomas
Real Estate West - Manhattan Beach, CA
e-PRO, Manhattan Beach CA
William.. Interesting take on the market and quite accurate.  Most first time buyers are spooked by what they hear and read in the media.  They are terrified that if they buy today their homes will be worth significantly less in 6 months.   I do disagree with lowering owner occupancy requirements in large developments.. I know of a number of places that are almost totally rentals and will likely stay that way until the market increases significantly.  Most buyers don't want to buy in these places because they are generally not in good shape. 
Jan 30, 2008 10:41 AM
William Johnson
Retired - La Jolla, CA
Retired
Hi Kaye, It is somewhat reassuring that if their homes are in fact worth less in 6 months, history suggests with its empirical evidence to back it up that homes values go higher and lower through different market cycles, The highs get higher and the lows never drop back to far indicating clearly that over time the property values end up in the plus column. When  you couple that with the tax incentives for owning a home, it would clearly show  that there is no really bad time to purchase. With the decline in current values and many sellers being highly motivated, it would seem very much the time to negotiate a good value for 1st time buyers in particular. Couple that with very low rates and sounds like a winning scenario. But the hesitation is natural for the many untrained consumers. It is mostly the reason that 5 % succeed in grand style and the remaining 95% maintain at best but mostly never really win the prosperity battle.
Jan 30, 2008 12:59 PM