Real Estate Blog - Use Reason and Logic to Buy Real Estate in the Current Economy Edited

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Use Reason and Logic to Buy Real Estate in the Current Economy Edited

Ignore the news and tune out the chatter "the sky is falling" is easier said than done. If we are not in a recession, then we act like we are. We have allowed fear to become the overiding factor causing many to do nothing when it comes to investing in real estate. One should remember that real estate is a long term investment and has proven to be one of the best investments overall. Of course, there should be some skepticism and caution given the current outlook of our economy, but skepticism and caution should be tempered with reason and logic and not become out and out fear.

From Right on Your Money by Dan Kadlec in Time Magazine, Dan writes, "There has rarely been a moment in history when you couldn't scare yourself into doing nothing. ...When prices are falling, few people have the discipline to buy a house... but those who do pull the trigger excel in the long run."

It seems we are experiencing one of those rare moments where many potential home buyers have been scared into doing nothing. The Federal Reserve is cutting short-term interest rates faster than any other time in history and rate cuts tend to improve the economy in time. Yet home buyers continue to hesitate. The end of the recession, if there is one could actually be in sight.

If you have good credit and plan to stay in a home for at least five years, then it's time to get serious.

Now is the time to buy before interest rates start to rise and they will sooner or later. When they do, this will wipe out any gain you think you might have by a further drop in prices. Also, home prices may stabilize and sellers may become less willing to negotiate.

Dan Kadlec uses this example:

Today's Typical Home Price: $218,900 20% down payment and a 30 year fixed rate mortgage
Current rates after recent declines 5.5%
Monthly Payment: $994.31

Cost in 12 Months?
Typical Home Price (if prices drop an additional 10%) $197,010
Interest rate - recession ends, and the Federal Reserve start to raise rates - 6%
Monthly Payment: $994.94

Conclusion: If you waited a year to buy, you would have saved nothing !
Note: Interest rate quoted to me by a local lender on 2/28/08 was 6.375 (already higher than what Dan used in his example)

Single Family Residential Home Sales - Fannin County - February 2008

Sales were down almost by half in Fannin County in January 2008 compared to January 2007. But, February 2008 is showing a different picture. Sales are almost even with 24 residential single family homes sold compared to 27 single family homes sold in February 2007 as reported by the Northeast Georgia Board on March 1, 2008. Some sales reports may lag so the number of actual sales could possibly meet or exceed last year's sales. The gap is closing!

Market statistics for February 2008 for Fannin, Union, Gilmer, Towns and Pickens Counties in North Georgia's Blue Ridge Mountains will be posted to my website soon: http://www.move2northgeorgia.net/

Donna Yates, Georgia Realtor, serving home buyers nationwide. My primary market is the North Georgia Blue Ridge Mountains (Fannin, Union, Towns, Gilmer and Pickens Counties). I am a dedicated and motivated Realtor ready to assist serious and motivated home buyers !

Edited: March 19, 2008

As a professional Realtor and one who is dedicated to my profession fulltime, I do not arbitrarily nor irresponsibly report that it's a good time to buy if: (1) I do not believe it is true and (2) I do not have facts to support what I am writing so please talk to trusted Realtors in the market in which you are interested. Each market is different and they are local. If I thought it was a bad time to buy in the North Georgia market, believe it or not, I would say so. Afterall, I have had to tell several sellers that it's not a good time to sell over the past year, why would I not be just as honest with buyers? I study the market carefully, interact with appraisers, investors, lenders and other realtors on a daily basis. I live, work and play in my target area and there are many factors to consider about the market than just a computer generated analysis. Trust is my trademark. If you want a truthful Realtor, one who is straightforward and realistic about the market, then contact me. I look forward to hearing from you.

Also, read more from the Georgia Realtor's site at the following: http://www.garealtor.com/Newsstand/IndustryNewsandNotes/tabid/226/Default.aspx

You can read the article located at the site above in it's entirety. Here is a small bit for starters:

By John Adams
Contributor - The Atlanta Journal-Constitution
Published on: 02/17/08

The first house we ever owned was actually a duplex. The previous owner had converted the screened porch into an efficiency apartment. Because the big side was under a lease, I moved into the efficiency with my young bride, her cat and our big dog.

One reason I was so anxious to buy was that, in 1978, the long-term fixed rate was sitting at 8 percent, and I sensed a rate increase in the air. I remember that it was wintertime, and the apartment was rather cool, but the seller was a friend and agreed to accept a price of just $40,000 for this old duplex.

It was time to make a move. I still own this property today. It's located near Emory, and is easily worth 10 times what I paid in 1978. It's one of the best investments I've ever made.

Many of you have been sitting on the fence, waiting for the right time to buy real estate. You don't have to buy anything, but you think that if you could get a good enough deal, you might be ready to move. Well, please consider this column to be your engraved invitation. I believe there are compelling reasons that you should seriously consider making your purchase in the next few weeks, and I've got three main reasons for sounding the alarm:

Posted by Donna Yates, Georgia Realtor Georgia Real Estate,Blue Ridge Mountains on 03/01/2008 03:38 AM

Comments (30)

north georgia blue ridge mountains, fannin, union, gilmer, towns, pickens, real estate investing, home buyers, donna yates georgia realtor

Originally posted at: North Georgia Blue Ridge Mountains Real Estate Blog, Donna Yates, Realtor: Use Reason and Logic to Buy Real Estate in the Current Economy Edited

30 Comments on Use Reason and Logic to Buy Real Estate in the Current Economy Edited

MAR

2008

Donna - this is a great example, I am going to use this on some of my clients that are sitting on the fence - waiting on that great deal or for us to reach the bottom. Thanks

Donna - well put and what a good example. I should print that on the back of my business card. That doesn't even count tax write offs. Thanks for this one!

Very well-articulated, Donna. This topic is so confusng to consumers, and you just made it easier!

Vincent: I just turned on the TV only to hear another report from the news media making it sound as though the world is coming to an end. If only they would grill our political candidates as to what they really stand for the way they've pounded into the mindset of consumers that our economy is crashing. Thank goodness for the remote!

Virginia: Great point Virginia - tax write offs! Way too many advantages to home ownership than not which is why it is the American dream.

Margaret: We know this is a business cycle that will change sooner or later and I just hope consumers who are confused will talk with a trusted Realtor and use reason and logic when making a decision to or not to purchase a home. Thank you for your comment.

Donna, I have also heard all the experts saying if you plan to stay in your new house it's a wonderful time to buy. This market is confusing and they never mention that real estate is LOCAL as well...Wonderful post.

Donna, I agree it is a strong buyers market in many locations and to invest now is a good time but your point is well taken to stay in the new place for a number of years.

Hi Donna, I just love that example. Glad to hear that things are picking up in your area.

Carole: You are right, I've yet to hear the gloom and doom reports that bombarded us and still do, say real estate is local. Many markets have done just fine through this correction.

Gary: I think the message that "real is a long term investment" got lost somewhere along the way.

Keith: February has been busy. Let's hope that holds true for the remainder of the year. Thank you foryour comment.

MAR

2008

Hi Donna,
Amen! Amen! The media drives me crazy with their never ending gloom and doom. I truly believe they are a big part of the problem. Your statement "If you have good credit and plan to stay in a home for at least five years, then it's time to get serious" should be on every real estate website. Thanks for getting the message out.

Cynthia: I totally agree with you that the media has been and is a big part of starting the panic and perpetuating the fear. We've been through these cycles before and the world didn't end. Thank you for your comment. We have seen activity pick up in North Georgia so maybe consumers are starting to sort out what's media hype and what's real.

MAR

2008

Donna,

If you have good credit and plan to stay in a home for at least five years... That's the key! Media sell panic. Always have, always will.

Mike in Tucson

Mike: Reason and logic, not fear is what home buyers and investors need to remember. Thank you for your comment.

Donna - Bravo. I couldn't have said it better myself. There are so many incredible opportunities for buyers today.

MAR

2008

Well stated and I could not agree with you more. If buyers are qualified, it is to their take advantage to get off the fence and buy now.

Tom: I hear GArealtor.com is rolling out a new campaign about why it's a good time to buy now. It can be found on their website. I haven't had time to look it up but will when I'm through with Active Rain.

Derrick: Thank you for your comment. I think buyers are starting to get the message. We've been busy here in the mountains. There's still some great properties for sale but don't expect that to last much longer now that we are about to start our normal busy season.

Tom: Update: Didn't see the new campaign discussed in GRI orientation tonight on GArealtor.com nor realtor.com. I'll have to ask about it in class tomorrow. Maybe it's just late and only one eye is working at this point and I just missed it somehow.

MAR

2008

"My" Donna...

Please be kind enough to let me know when the sky actually does fall.

I want to be standing on my roof when it does :)

In the meantime...Allow me say I love your new pic :)

TLW...ROAR!

Great post! Very well explained! I wish I could afford to run it in the newspaper right beside the next "prices dropping" article.

MAR

2008

TLW: The sky is a beautiful blue here and still in its place up above! I'll join you up on that roof but I think I'll put away the hard hat! Thanks for the comment about the pic.

Jenniffer: Thank you for your comment. I think most buyers are starting to see through all the media poo poo.

MAR

2008

Payment scenario #2 contains an error.

Also, buyer #2 has over 20K more equity than buyer #1.

Now you're saying equity doesn't matter, only monthly payment does?

This is a very poorly developed article, and it makes many assumptions and ignores many of the pertinent factors in play in the credit markets.

Why must you realtors always be so condescending to buyers? If we buy when you tell us to (which is ALL THE TIME), we are 'smart' and shrewd'. If we don't buy when you instruct us to, we are 'scared', 'fearful', or 'greedy'.

We are all infants, then, who need to be nannied and guided to the promised land of homeownership. The arrogance is mindblowing. I talk to realtors all the time who don't know the first thing about mortgage banking, finance, economics or the US dollar, but they all know that now is the best time to buy - prices are only going up from here.

Right now the buyers are leading both the sellers and the REALTORS out to the woodshed. The sellers are starting to figure out what is coming. The realtors, however, think that they are headed out there to administer a paddling to the stubborn buyers. They have not yet noticed that it is the buyers that are holding the paddle.

Weary Consumer: You missed the point of this post entirely but I welcome opposing opinions even though your interpretation has completely missed the mark. Thank you for your comment.

MAR

2008

Makes a lot of sense. Your figures show some great deals can be made!

Your Friend in Charlottesville, Virginia!

Charles: Thank you for your comment. Yes, I completely agree, great deals can be made which is why I say it's a great time to buy in my market while rates are still low. Your comment is much appreciated.

MAR

2008

This post has been edited to include more information about why it's a good time to buy as of March 19, 2008.

Donna - the comment about equity struck me. If a buyer is looking for one home in particular at 10% less than comps, he can probably find that home right now - and have equity - because it cost them less than a comparable home. If, in this example, we are implying that ALL homes drop 10% - the lower price does not mean that there is instant equity!

Bottom line - it is highly unlikely that we will see anything like a 10% decrease in most markets. Strong markets will most likely see lower appreciation than they have in years past. But overall, prices across the nation are down about 4% over a year's time - after a particularly tough year with numerous changes in lending practices. In North Carolina, economists anticipate that we won't necessarily have a 6% appreciation this year like we normally do. But homes are not losing value - and there are sellers willing to deal and make at least some concessions, which they won't be when the market starts zooming again.

Decreased interest rates mean buyers can afford more home now than normal - and prices are already low. Work with your real estate agent, negotiate prices where you can. Builders and sellers are willing to throw in extras that they wouldn't normally. I hate to say it, but now is truly a great time to buy a home.

Penny: Many thanks for your thoughts and comment. The whole point of this post was not to undermine the importance of equity but to focus on interest rates and how that affects any savings that might be gained by purchasing a home at a lower price. Paying more interest over 30 years adds up to a lot of money so therefore, the purpose of this post is to show how much it really can cost a buyer in the long run if and when interest rates increase and rates WILL increase at some point. Also, it is a good time to buy and I do not hate saying that because it is true. I watch my target market daily, talk to sellers and investors and appraisers daily and that along with a large inventory of homes, lower prices, sellers motivated to sell and low interest rates can only add up to it being a good time to buy. But that is a choice each buyer has to make for him/herself. Homes in my market are not losing their value and property appreciation rates are still increasing. I appreciate the detail you've included in your comment. Thank you.

MAR

2008

I am hoping top encourage those I know to buy while it is a buyers market. The media can make people react without checking out the true facts.

Carol: Thank you for your comment. Here's an example of how the media spins the truth: just this morning and I won't say which news station, but they reported how off home sales were in January with a large lettered headline scrolling across the bottom of the screen about January sales were down and after a minute of talking about the sales being down in January, they made a brief statement reporting sales were up in February and quickly moved on, and nothing scrolled across the bottom of the screen about February sales were up. Thank goodness consumers are so much smarter than what the news media gives them credit for.

MAR

2008

Thanks, I think it is the time to buy and plan to look up Dan's article.

Hi Carol: Remember real estate markets are local. It may be a good time to buy in the North Georgia Mountains but may not be a market elsewhere. That's why I say use reason and logic which I am sure you will. I certainly extend my very best wishes for great success if you do buy. Thank you very much for your comment.

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