Ben Bernanke the Fed chief spoke today in Austin and announced that the Federal Reserve would target long term rates. This with the announcement that the recession started a year ago, and consumers didn't buy enough this weekend, caused the stock market to sell off and long term bonds to go to incredibly low yields. This normally would jump start the housing industry, but as we all know, these are not normal times. Today conventional rates for a 30 year fixed rate mortgage were at 5.5% conventional, and 5.375% FHA, with all signs pointing to even lower rates possibly below 5%. Let's break this down for the Oklahoma market, and analyze what may happen as we go into 2009.
First Time Buyers
The average age of a home buyer is around 28, or as we like to call them Gen Y. These are the easiest people to convert because they are not burdened with a home in the first place. in Oklahoma City, Class A apartments are running at 97% occupancy, and it is not unusual to see a top drawer 2 bedroom, 2 bath unit renting for $875 and up. Some of the apartments have detached garage areas that can add $200 a month more to the lease. With new home builders discounting their properties, that same buyer can get a new home, condo or a town home for less monthly expense even at $160K, plus with a tax deduction for interest and property taxes, it becomes even cheaper. These buyers can get more space, upgraded interiors, and attached two car garages that give them more room to move and a yard for the dogs. This group can be persuaded to make changes because they are more open to change. We should see an uptick in numbers for this group.
Older Existing Homeowners
This is a group that have a home they have made comfortable and personal. Because of the stability of the Oklahoma City housing market they have also preserved their equity. It would seem natural that if their home is under $200K that with an absorption rate below 6 months on existing inventory and above $200k with enough inventory to make it a buyers market, normally we would see this as a "no brainer" for those people to move up of rates and the ability to get a good buy. I believe i said before these are not normal times. To get these buyers move you need to more Sigmund Freud than Adam Smith. These folks are just plain scared. They watch CNBC nightly and hear of the mighty U.S. becoming more like Uruguay. Things are bad but pundits make there money on sensationalism. Actually in Oklahoma City if these people have a house under $200K they are in the best position to buy I have seen in the last 10 years. First, under $200K in the suburbs like Edmond are selling fast and in some categories only 3 months of inventory is on the market. Then if they buy form $200K to $350K the numbers work strongly for the buyer. The key is to look for the long term. Selling high and buying cheap is a great formula for wealth building. The key as Realtors is to be able to show the statistics to back up the psychology pep talk.
Refinance
Here we have the real winner. With rates going below 5%, this will save the bacon of many homeowners on the edge. These owners we want to be able to refinance because if they default that is a drag on the market. Hopefully they will resist the temptation to cash out also, because that is a scary scenario. If they have the self discipline to pay off then tear up their credit cards okay. Getting rid of high interest loans is always a good idea unless it becomes another spending spree in the making. All that does is hasten the foreclosure process.
Choose a knowledgeable Realtor
This sounds like a stupid statement, except I see people working with no nothing Realtors all the time. This is not the time to work with someone who does not have the ability to evaluate the market, and understand how to do functions for you like absorption rate, or is first class in marketing your property. It is also time to trust the knowledgeable Realtor. When they give you the right information about your homes value, and you would rather listen to a Realtor who will tell you anything to get the listing including a pie in the sky price, run like the wind. This is the time for honesty not greed. This is the only reason to pay a commission, otherwise stay in the home you are in. Now is the time to make your financial security better for the long term and nothing is worth jeopardizing that.
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