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Do you Buy Now or Wait? 546 Views :: 1 Comments :: :: Real Estate, Market Analysis Ready to buy? Should you wait to see if prices fall, or take advantage of today's low mortgage rates? If you're asking whether a significant price drop would lower your monthly payments more than a big increase in mortgage rates would raise them, it's easy: You should probably root for the price decline. For example, the monthly payment on a $300,000, 30-year fixed-rate mortgage at today's rates is $1,847. Rates would have to rise to 8.1 percent - nearly two full percentage points - before a $250,000 loan would cost that much. But it sounds as if you're really asking whether prices in your area are likely to decline enough to justify holding off on a purchase. When it comes to that, frankly, your guess is as good as ours. While there's no lack of experts making predictions about where home prices are headed in the next year, no one knows for sure. So instead, focus on what we do know: Over the long haul, home prices in the U.S. have appreciated at about 6 percent a year, and even in the most volatile markets, one-year declines of more than 10 percent are very rare. And if you wait to buy, you'll still need to pay rent in the meantime, so holding off would have a cost too. Meanwhile, a buyer's market gives you leverage to get the most concessions you can from the seller. If prices are stagnating or dropping in your area, you can offer about 10 percent below the asking price to start off the bidding, says Miller, and ask the seller to pay for closing costs, which can run to 2 percent or 3 percent of the value of the mortgage. Or see if you can get a new roof, wiring or better appliances thrown in ( just don't get greedy: Your seller might walk away if you demand a Jacuzzi to boot). Bottom line: If you can afford to make the purchase now and you're planning to be in the house for at least five years, I wouldn't be worried about buying a house today. Of course, in any market, it pays not to get in over your head. If you would have to get a short-term adjustable-rate mortgage in order to afford a home, you could run into trouble if interest rates are higher when your mortgage adjusts. And if you think you'll want to sell within a few years, you could end up with a loss (after paying broker's fees) if home prices stagnate or increase just 2 percent a year during that time. By Asa Fitch, Money Magazine staff reporter Money Magazine [Jump to section on the Texas Gulf Coast] S&P Launches National Home Price Index in the United States that Reflects Home Prices Throughout the Country for All Market Segments Standard & Poor's, the world's leading index provider, announced today that it is launching a national version of the widely followed S&P/Case-Shiller® Home Price Indices. The S&P/Case- Shiller® U.S. National Home Price Index tracks the value of single-family homes across the United States, and is calculated on a quarterly basis. "For most Americans, their home is one of their most important assets. In a time like now when there are mounting questions about the future direction of the overall housing market and its impact on the economy, an accurate measure of national home values is particularly important," says David Blitzer, Managing Director and Chairman of the Index Committee at Standard & Poor's. "Therefore, Standard & Poor's is pleased to expand the coverage of our S&P/Case-Shiller Home Price Indices to include a comprehensive, national measure of the value of single family homes across the United States." "This index is truly the gold standard for measuring value changes in overall U.S. housing. For the first time, market observers and global investors will have a readily-available national index that correctly follows the value of investments in housing through time, providing a true measure of value that captures all market segments -- regardless of financing type," says Robert Shiller, Chief Economist of MacroMarkets. "The wide universe of recent home sale transactions -- not merely the significantly diminished portion associated with conforming mortgages -- is reflected in this and other S&P/Case-Shiller® Home Price Indices. Now more than ever, the market cannot afford to ignore the significant impact that home values securing the collectively dominant subprime, jumbo, other non-conforming and portfolio mortgages have on real estate price trends and the economy at large." Results for the S&P/Case-Shiller® U.S. National Home Price Index for data through the prior quarter will be released at 9:00 a.m. Eastern Time on the last Tuesday of February, May, August and November starting February, 27th. Data can be found on www.homeprice.standardandpoors.com. All booms eventually go bust. We all remember the stock market crash of 2000, and most of us remember the real estate crash after the implementation of the 1986 Tax Reform Act. Today, many people are anticipating another real estate crash. Unfortunately, despite our understanding of booms and inevitable busts, it's always near the top of a boom that "dumb money" buys in. Currently, this has set the scene for a potential market bust of which few people are aware. I'll describe it today's column, and advise how best to prepare in my next column. I'm not a hundred-percent certain where things are going today. Most economists are forecasting a strong economy, but economists worry me more than newly minted real estate agents. Most seem to be happy that inflation is in check; when I hear that inflation is in check, I begin to think about deflation, and as most of us know, deflation is much, much, worse than inflation. An Inconvenient Truth In the simplest terms, inflation occurs when there' too much money in the system. On the flip side, deflation occurs when there are too few dollars in circulation. When that happens, prices start to fall. For example, in inflationary times, prices of houses go up. In deflationary times, prices of houses come down. If prices of houses begin to drop too fast right now, it could be 1986 all over again. The strong economy we've been experiencing for years has thus been built on dumb money -- in addition to smart money -- borrowing more and more. Even the U.S. government has had a field day borrowing money to do such things as fight a war and attempt to rebuild Iraq and Afghanistan rather than rebuild our country. And the inconvenient truth about debt is that it has to be paid back. A Certain Ratio For the next two years, I'm cautioning people to watch their ratios between good debt and bad debt, and keep liquid reserves such as cash, gold, or silver. Good debt is debt that makes you rich. An example of good debt is the debt on the apartment houses I own. That debt is good only as long as there are tenants to pay my mortgages. If tenants stop paying their rent, my good debt turns into bad debt. Most people don't have good debt -- all they have is bad debt. Bad debt is debt that makes you poorer. I count the mortgage on my home as bad debt, because I'm the one paying on it. Other forms of bad debt are car payments, credit card balances, or other consumer loans. On our investment properties, we carry a higher debt-to-equity ratio. To protect ourselves, we have cash reserves to cover the expenses of the properties. For example, in case all the tenants leave and no one is left to pay the mortgage and expenses, we have separate funds for each property, with enough liquidity -- i.e. cash, stocks, and bonds -- to carry the building for a year. Unfortunately, the dumb-money crowd has no reserve funds for their properties. Where Deflation Does Its Damage In a deflationary market, the value of your home can drop. If the value drops, the bank may call in your loan. Even if you've never missed a payment, and even if you're ahead on the payment schedule, the bank can call in your loan if they feel the value of the property is lower than the loan amount. For example, say you buy a house for $100,000 and put 20 percent down and borrow $80,000. If the market deflates and the value of your home drops to $70,000 (because everyone else is selling their homes to get out of debt), the lender may ask you to pay the $80,000 you owe immediately. If such deflation happens, cash will become king. There will be half-price sales on BMWs, expensive restaurants will close, and people will be out of work. And anybody who caters to people with dumb money will be in trouble. As I said before, deflation is much worse than inflation. Smart Money, Bad Times The good news is that during deflationary times, smart money reenters the market, so crashes are great for smart people with smart money. Instead of listening to the optimistic economists, then, you should eliminate bad debt and improve your debt-to-equity ratios on good debt. by Robert Kiyosaki Yahoo Finance Home sellers advised to get real on prices Real estate agents could help soften the blow by telling sellers to ask more realistic prices for their houses. With an increasing number of houses and condos on the market in the county and the number rising, the residential construction market is likely to slow dramatically this year as builders work through a backlog of homes ordered in better times. Affordable housing The near future isn’t going to bring boom times for real estate in the county.  Don’t expect the tide to start rising this year. Hold out hope that if real estate agents muster the collective will to talk tough to their sellers about prices, the supply of existing homes could be reduced more rapidly. Too often, agents soothe sellers with optimistic talk about additional open houses or other tweaking of sales campaigns. We all know what the solution is, don’t we? It’s called a price reduction. In spite of what you want to believe, we’ve not hit bottom yet and won’t until the inventory of existing homes starts to shrink. Statistics backing that up: • Sales of existing single-family homes fell in 2006; • The number of existing single-family homes on the market increased from January 2005 to January 2007; • Builders of new homes face tough competition: 42 percent of the existing inventory of homes was built in the past three years. Too much inventory The truth of the matter is if the non-motivated sellers would take their properties off the market, it would do more to motivate the market than anything else that could be done. By Dick Hogan TexasGulfCoastOnline.com provides housing market conditions and price trends for all the Texas Gulf Coast real estate markets. Our numbers show that while we are affected by the nationwide housing slump, we are affected by it to a much smaller degree and in a few cases not at all. For example, McAllen is the number one appreciating market in the Country, and all our markets showed an at least a small increase from 2005 to 2006. Also we are experiencing a record level of interest in our area and our internet traffic and number of inquiries is at an all time high, as our market is showing a level of stability and strength not seen anywhere else. Nonetheless, we still are experiencing hesitance in buyers actually closing deals, but we expect this pent up demand to burst into sales activity sometime in March. The bottom line is that right now could be the best position buyers will be in for negotiating purposes this year. Also both sellers and buyers should make up for any current market reductions by leveraging the opportunities we now have available to make up the differences. Another thing to consider is that our major supply of vacation and second home buyers are from economies and markets that are booming and not experiencing even a hint of decline, including McAllen, San Antonio, Austin and Houston. Saving are available by using such tools as the 1031 Tax shelter and our Flat Fee property listing service. Also pay more attention to properties that are below market value by using our advanced search tools, price analysis tools and real-time property and price alerts - or have us do that for you. Contact us for details on our current market condition and our forecast for the rest of the year and what you can do to take full advantage of the situations. Stay tuned, check our analysis tools and see if our markets don't take off later in March and then all the way through August. By Mike Stuart TexasGulfCoastOnline.com