Coming into the summer there was talk among some of the real estate Gurus that the next few months were hands down one of the best times to buy a house in - well - probably the history of mankind. Then again when you talk to these guys it is always the best time to buy a house is - well - the history of mankind. Its like crying wolf in reverse - who even listens anymore?
But Guess what? Santa Claus has come to town! (Pay attention, Virginia)
Turns out the Gurus were (and are) onto something they were (finally) pointing the way to home ownership that is a flat out guarantee of turning a real profit going into the deal - meaning, from day one. And, if you were or are a first time Buyer then it is and has been hands down the most incredible time to buy a house - yes, in the history of mankind.
(This in the history of mankind business may or may not be right - I just like saying it.)
OK, underwriting is tough right now. In fact, you can plan on it being tough for a long time - fact is it is going to be a long time before the word 'lenient' and 'underwriting' show up in the same sentence. Its not like it is running a gauntlet but the level of detail and cross detail is tantamount to walking the streets of Berlin in Germany, 1944 - they are looking at everything and everyone as if they are lying through their teeth. The bottom line is that you have to have a real job that pays you enough that you qualify for the payment. decent credit and here is the kicker - actual money in the bank that you are ready to use to buy a house. Tough guidelines - yes - but hardly outrageous.
Look what you get. The rates are down in the low 5's and recently have grazed across the upper 4's. FHA loan limits remain at $207K - which doesn't do much for the guys trying to move up past that mark but there is plenty of 95% LTV conventional out there for the higher price points. Of course first time buyers are rewarded with a buying bonus from the Feds for having gone to the trouble (which I think of as the Free Money Giveaway Sale). Throw in that the overall market is rebounding it is the time to jump on before values start to reach something akin to their previous highs. In a word, buy now and you not only get a heck of a rate you are buying before the pricing heads up to where it was in 2002-2003.
Is it really possible that the market will ever permit some of the values we saw in 2002/2003? You bet. We are not talking about the stupid high-over hyped markets, we are talking the markets that appreciated because there was more demand. Not everything in the market was over valued, just some areas. Naturally, it is beyond the scope of this discussion to reach out past North Texas. In most of the troubled markets - Vegas, Florida, California are the most notable - there were artificial forces in place that punched those markets up way past the reasonable mark. We have some genuine indicators right here in Big D (and the surrounding areas).
Let's look at some of the newer homes built in 2003-2005 many of which were sold in the hey-day of sub prime. Values were spiking up during this heavy build cycle and builders were able to push their pricing to the very top of the market but even as they did this the cost of production continued to rise as well. This is true in Frisco, McKinney, in the downtown Dallas and Fort Worth areas including Uptown and even in entry level markets like east Dallas, Balch Springs, South Arlington, Mansfield just to name a few. When the crisis hit the value of new homes plummeted way below the actual cost to build - forget the lot, we are talking actual building costs including labor and materials. There has to be some consideration for the lot cost but even if we back it out many of the prices on newly built homes were slashed way below what the bank or the builder had in the building cost.
This is at least one area that prices is starting to show some genuine stability and, in my opinion will continue to do so as new homes are built.
That said, what is fueling the recovery more than any other single thing is the long term rates. The fact is the Feds are buying $5 Billion dollars worth of mortgage back securities every single day and have been since the first of the year. Bonds are trading at the top of the market - and correspondingly, long term rates remain low.
How low? One can only guess - but, for my money, I would expect at least a one and half, maybe two points below normal market rates. We have 5% money today; without the government buying Bonds we could easily be in a market of 6.5% to 7.%. (maybe higher). If that were the case, the market would be dribbling along and in some markets would be at a full blown standstill. On this one thing the Feds are absolutely stimulating the economy - they got this one right.
So what is it worth? At $100K a single interest rate point is worth roughly $60/month in payment. $60 Bucks ! This is a lot of money - nearly $600 a year in additional payments In real dollars every point has a value of somewhere between $6,000 and $10,000 in price or, in percentage of value roughly 10%. if you put it in context the market is being pushed artificially low in order to spur the market. The impact of the low rates is continuing to value somewhere in the neighborhood of 15%-20%, maybe more.
So if you think for one nanosecond that real estate is not a good buy right now, you are dead wrong. I was speaking to a LO recently that was telling me in graphic detail what an idiot I was to think this was a good market. He asked" so what do you think residential real estate is doing right now?" I answered " 1% maybe 2% appreciation in those markets that are not declining." He said" case closed - real estate is a bad investment right now." I retorted "what a narrow view of what is really happening" and the conversation ended. The market may be hobbling relative to other investment vehicles out there but, taken contextually, the market is starting to push upward and even if the Feds stop buying Bonds everyday (in favor of real market forces) by then the market should have a good tail wind and be on a genuine road to recovery. If you buy now you will be in an excellent position when we catch that tail wind again.
(This entry was actually written in October before the extension was passed. It is still applicable today and the whole "Yes, Viginia" business seems perfect for a Christmas Eve entry. )
Comments(0)