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The buyer's dilemma

By
Real Estate Agent with Caldecott Properties 01372814
Hello All:

Many of you I hope follow the real estate market regularly. I, of course, do it on a daily basis. And here is what I noticed from all the different market segments that influence real estate and prices (values).
 
1. Mortgage rates:
I am sure you know the influence of interest rates on the real estate market in general 
and 
 on value 
s
 , or to be more precise, on the affordability
for 
a buyer, i.e. purchasing power. Every 1% in rate increase reduces your purchasing power 
by
   (approximately) 
 
 
10%. . Buyers will look at current interest rates of about 4.5%, and instead of comparing it with the historical average, they compare it with the interest rate that was available until May 2013, at 3.5%.  I would like to suggest not making that mistake. I bought property when the interest rate was 9.5%.  I am not claiming that the rate is not important, it is, but 3.5% will not come back any time soon 
or ever
 , and all predictions are interest rates WILL rise, 
due to
  the economy improving, and the FED reducing the QE3 by 10 billion per month in the 
coming
  months. Remember 
this FED program held mortgage rate artificially low 
.
 
2. Property values:
Property values are still going up, although more slowly than we experienced in 2013. The predicted value increase for 2014 is between 9% 
(on the high end) 
and 5% 
(on the low end)
 . 
Please refer to the 
Oakland prediction of value increase 
I emailed you 
a couple of weeks ago. With values and interest rates increasing, the buyer will have to make a decision to get in now or NOT get in at all 
. T
 he longer the buyer waits, the more difficult it will be to qualify. In many places, prices have not 
yet 
reached the high levels of 2006. Rockridge may be the exception. 
 
3. Rent VS Buy.
I have used this comparison several times in my 
investment meet
 up meetings, and in most cases, it is more favorable to buy than to keep renting. If you would like me to 
analyze your specific situation, please 
 make an appointment, and we will use your data 
points 
to make that analysis. Clearly
 
rents are still going up and the building industry is still building many more apartments, 
indicating 
they still see a good profit from renting.
 
4. Inventory:
Inventory of (good) properties is still low. The  experts do not see this changing any time soon. There are a couple of things that could potentially improve the inventory, like:
a. Shadow inventory, held by under water owners or banks, has not surfaced completely. One reason of course, is that banks can hold on longer now, because the market prices are rising. Second reason is that with rising prices, more and more owner improve their underwater situation every month, perhaps in such a way that the owner doesn't have to short sell or foreclose. These owners will not move until they can actually make a profit from the sale.
 
5. Home-builders:
New Home building is at about 50% of the building rate that was going on between 2003 and 2007. So I do not think we 
can
  count on them to increase the inventory quickly 
. I
 t takes them at least 18 months to 
build and 
bring property to market. And where in the Bay Area is there enough land to build single family houses?
 
6. Buyers demand:
What we definitely see is that there are many buyers coming from San Francisco to the East Bay Area. Many buyers are priced out of the market there, and they find good value here in Oakland and neighboring cities. The City of Oakland is also doing the best they can by having about 12 projects approved to improve area's or increase commercial activities. Those projects will increase buyer's demand for those area's. 
 
7. Findings:
Even with interest rates increasing, and prices increasing, good properties in good area, in good condition still get multiple offers if it was priced correctly. I can give two examples of just this week. I property in Maxwell Park sold for over asking price, and had 13 offers. This is in the 500K range. Another property in the Montclair area had 7 offers, and went way over asking price. This is in the 1 million dollar range. Which seems to indicate that buyers are still willing to buy good properties in good locations NOW, as it may get more difficult to buy later.
 
Here is a recent statistic for one area only, 94602:
The average sales price over the list price is 106.3%
 
Let me know if you have any questions or feedback.
Kind regards
Antoine