It's Labor Day, the end of summer, and the one year anniversary of the federal government take over of Fannie Mae and Freddie Mac. Just a year ago the world was on the brink of world wide financial collapse. So, how are we doing now?
Client and friend continually ask me about the path we are on in the real estate market. These are my answers.
Is the recession over? No.
The economy is relatively stable here in Northwest Philadelphia, still there are signs of recession all around. I went to buy something from the pet store on City Ave. and found an empty store with a 'for lease' sign in front. My favorite clothing store in Chestnut Hill has closed, another empty store with another 'for lease' sign. Car wash 'entrepreneurs' are turning up on the streets. Some 'garage sales' have become ongoing enterprises. City revenues are down, and Mayor Nutter continues to threaten to enact his 'Doom's Day' budget, which would cut 3,000 City jobs. Philadelphia needs the State to pass it's budget and come to Philadelphia's rescue. Pennsylvania hasn't passed a budget because politicians don't want to make the difficult choices required by reduced funds.
Are property prices still falling? In Philadelphia, some property prices are down while some are not. It depends on the price range, the type of property, and the condition. Why? There are fewer buyers. And, the financing that is presently available favors some price ranges and types of properties over others.
I wanted to refinance, why is my appraisal so low? An appraisal at present is based on only the most recent comparable sales. The market has been slow, so there may not have been any sales of properties that are really comparable to yours. Sometimes the appraiser, or the lender's underwriter, is anticipating falling prices and reducing the appraised value proportionately.
I want to take advantage of the Tax Credit, can I get a mortgage? There are some very attractive mortgages available presently, and the rates are low, so you should apply. The qualifying criteria are high. Some buyers will need to raise their credit scores and/or reduce their overall debt before they can buy. If you can't buy now, you can work on improving your credit score. If you need help knowing what to do Mt Airy USA provides Housing Counseling at no cost.
Is the $8000 Tax Credit artificially increasing the price of homes? I haven't seen any evidence of that here. Most buyers get the money after the sale has settled, so it's not part of the sale negotiation, and it is not something that the appraiser is going to consider.
Will the end of the Tax Credit mean the end of real estate sales? The Tax Credit motivates some people, but it doesn't help them buy a home. There are so many other factors involved in buying and selling real estate. A credit can't create or destroy the market by itself.
What needs to happen for the real estate market to recover? More financing is needed. Investors who fanned the flames of a hot market with 'no doc, no income, no credit, no cash' financing are still in a 'no lending' mode. FHA loans have become the primary loan option locally. Still, FHA has a limit on the maximum sale price, and can only be used for owner occupied 1 to 4 unit properties. And, FHA has raised it's mimimum down payment, raised it's minimum credit score, and no longer works with first time buyers who don't have enough credit history. Conventional loans from Fannie and Freddie and some local banks and credit unions are available, for those with more cash and very good credit.
How long will it take for prices to go back to where they were at the top of the market? We aren't going BACK, at least no one without a DeLorean is going back. Depending on how much prices have fallen from the high in 2006-2007, properties purchased at the top of the market should see the value return to that level in somewhere between 5 and 20 years.
A former investor client of mine owned a couple of properties that he bought and renovated at the top of the market in 1987. When he couldn't sell them without losing money, his strategy was to hold onto them and rent them out, taking the annual loss on his tax return, until they recovered their value. His estate sold these properties at a profit in 2006.
Should I sell my property now? Yes, if you are selling to move forward in your life. Yes, if the alternative is foreclosure. Maybe not, if you can wait and your property is in one of the categories which are under-selling in the present market. No, if you want to sell for the 2007 price.
Kathleen Sheridan (Weichert, Realtors(R) - McCarthy Associates)