Are We There Yet?

How do you know when the real estate market has hit rock bottom? When you see it in the rearview mirror. That's how it works in real estate. How close do you need to be to trigger your buying decision?  Right now you the buyer are dealing with eager sellers. Sellers know this is a buyer's market and they have adjusted their prices, marketing strategies and willingness to deal accordingly. When the tide turns that will evaporate and you'll be facing firmer pricing and much less willingness to deal on price and transactional costs.

Home and land prices have dropped to levels not seen in several years. Interest rates are low but are moving up as this is written. Sellers have either gotten realistic about their price or taken their home off the market. These are facts.

The question of whether we are at the bottom should be restated to be "Does it matter if we're at the bottom?" The answer to that is no. You want to be very close, which indicators say we are in the Panhandle, but if you're a little early you get to enjoy very cooperative sellers.

Nobody knows exactly what's going to happen, we can only guess from historical cycles and our instincts. When prices were rising a lot of people guessed incorrectly about when we'd hit the top. The same will happen at the bottom.

According to the Office of Federal Housing Enterprise Oversight (OFHEO) report released June 24, 2008 the price of homes in Florida expressed as the annualized House Price Index (HPI) dropped 8.15%. That was the average across the state but it also breaks it down by Metropolitan Statistical Areas (MSA)'s with very interesting results. The HPI for the Pensacola MSA dropped 4.43% while the Fort Walton Beach/Destin MSA dropped 10.37%. This report is considered the most accurate by economists because it uses same property sales.

As an editorial aside it was fascinating to note that the Mobile MSA experienced a 6.64% appreciation in its HPI. One might speculate Alabama's greatly superior ability to attract industry had something to do with that but that's a story for another day.

Let's look at real dollars and cents. It doesn't take much of a rise on your interest rate to cancel out a possible drop in price. As this is written the rate is 6.5% per cent. Three weeks ago it was less than 6%.  

You're buying a home and financing 100% of the $180,000 sales price. You will own that home for 6 years. Today the interest rate is 6.5 so let's take a conservative guess and say it will take 3 times as long to jump the next ½ point to 7 or 60 days. That extra ½ point will cost you an additional $4,535.57 in interest over that 6 years.

For cost let's use the average of the Pensacola and Ft. Walton Beach MSA HPI's which is -7.4%. Over the next 60 days that would result in a price decrease of $2,214 to $177,786.  In the two months you waited for the price to drop you lost $2,321.57 in increased interest.

The last factor to consider is the willingness of the seller to make concessions. Concessions may mean a further reduction in price now, or payment of transactional fees, or re-carpeting or other "concession" which results in the buyer receiving a better deal. Sellers do not like concessions and for good reason. All concessions do is decrease what the seller takes from the closing table. Concessions are much more difficult to obtain when the market evens out.

In conclusion by delaying a purchase you are betting prices will decline at an accelerated rate and/or interest rates will not rise enough to wipe out any price decrease which may occur. All things considered those are long odds indeed. The opportunity is here, now is the time to buy.  

Scott Parsons is the President of Reliable Land Title Corporation located in the Florida Panhandle. . He is a licensed Title Insurance Agent and holds the Certified Land Title Searcher and Certified Land Title Closer designations conferred by the Florida Land Title Association. He has 32 years experience covering every aspect of the title insurance and closing business. His company insuraes land and closes transactions throughout the state of Florida.