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CAVEAT! If you really want to buy a house in 2010, you may not have much time left! With the 2007-2009 recession fading into history, buyers are returning to the real estate market in droves. However, what most shoppers don’t realize is that there are many forces working against them that could make it difficult to find real bargains in the spring and summer. Here are five major forces shaping the market earlier this year, and you better pay attention to them:
1. Under the provisions of the massive stimulus package designed to support the housing market, the Federal Reserve has been buying mortgage securities for over a year to maintain liquidity in the housing market, which also artificially supported rates in a level below 5%. . However, this part of the ER stimulus is ending in March, and it is already raising rates in anticipation of the program’s grand finale. What does it mean for the mortgage market? It means that March or April arrives, you will no longer find rates in the low or middle 5%. The consensus of most economists and financial journalists is that we will have 6% mortgages by the summer. What does it mean to you? Get your loan approved and rate locked no later than mid-February!
2. As “normal market” demand for mortgage-backed securities remains very low, lenders will further tighten their underwriting guidelines. The preview of this was shown in December 2009, when following FNMA and Freddy, all lenders increased credit score requirements for prime mortgages from 20 to 40 points, FHA followed with raising the minimum score from 595 to 620 , and some lenders made 640 a minimum score for FHA or any other government-backed loan. Come summer, the credit system will most likely tighten further, as banks will have a much smaller market to sell their loans, forcing them to pick only the best borrowers to bet on. If you’re not one of them, you may need to have at least a 25-30% down payment, rates below 30%, and a score of 750 to have any chance of getting a home loan.
3. Unbeknownst to shoppers, the government has passed a number of new laws in the last two years, of course, all of which were made under the highly publicized banner of helping Joe the Consumer. In reality, these new laws virtually eliminated a mortgage broker as a viable player in the market. The government blamed the brokers for pushing “creative” mortgage products to uneducated consumers who couldn’t afford them, however the reality is that the brokers were only selling products pushed to the public by the BANKS. The truth is that brokers do not offer their own products, brokers do not participate in the meetings of the boards of directors of the banks that decide what financial products to offer to the public, brokers only sell what the banks offer if the public demands it. In 2006 brokers were responsible for 60% of all loans originated in this country, by the first quarter of 2010 – less than 5%! Why should you worry about that? Quite simply: While enjoying virtually unlimited access to billions and trillions of taxpayer dollars, the banks managed to eliminate the only serious market force that kept their mortgage rates competitive over the past decade. With brokers gone, all loan origination now goes to retail banks with their “friendly and knowledgeable” staff who don’t care if you buy your mortgage today at 7% or not, because they’re on the salary paid for your deposits. savings and unfair banking fees, and because your only alternative is to go to a retail branch of another bank, where you will face just as much competition and desire to lower rates as at the first branch. Consider this: the banks managed to quietly monopolize a market valued at $10-15 TRILLION DOLLARS, and their profits (spreads between your mortgage rate and the current Federal Reserve rate, which is 0%) per loan are the highest you’ve ever seen. have had in history. ! Now, did you get a thank you postcard from your bank’s CEO last year for helping banks with some free money?
4. The homebuyer tax credit program also ends in April. Must be in escrow by April 30th and close escrow no later than June, which means in March/April we will see hordes of last minute buyers arriving late trying to take advantage of the program and inventory of Homes, especially in the 200-400K price range will be under strong pressure from buyers, just as we saw in October and November 2009, before the tax credit program was known to be extended. This time it is different: there will be no more extensions. This was the final extension, and those who missed out on this program because there was no inventory on the market will try to buy something this time.
5. Traditionally, March is the first month of the official shopping season in San Diego. In my 10-year spreadsheet, March sales represent an average 30-50% increase in the number of sales closed over February of the same year. Trust me this year will be no different. However, those who are late risers and start buying a home in March will face much tougher competition and will be forced to bid on properties beyond their reasonable appraisal, forcing buyers to increase their down payment or they will be discouraged. and end up on the sidelines again.
The housing market has been hit hard enough to the point where even bitter pessimists started talking about a turnaround. Some still talk about a massive “shadow inventory” of houses that banks are supposedly holding onto to prevent the market crash and that when it finally comes the market will crash, yet this talk has been perpetuated since late 2008 and nobody knows when and if this inventory will ever enter the market. Today banks can dump four or five times as much inventory on the market, where houses attract 10 to 30 offers in the first week, and buyers simply swallow them and move on.
So what do you need to do now to take advantage of what’s left of the real bargain-hunting season?
1. Get your loan prequalified now, don’t wait for your tax refund to hit your bank account. If you need to borrow money from relatives for a down payment, go ahead, you can pay it back with the tax credit money, with your tax refund, or do their laundry for the next 30 years, but get your loan fully approved in the the highest amount possible and have it available when you are bidding. Nobody seriously looks at your offers today unless you can attach a solid loan approval along with proof of funds for a down payment.
2. Make sure you have a clear idea of what you’re looking for and make sure it’s realistic. Don’t ask your agent to send you everything from Bonsal to San Ysidro in the 100K to 800K range and expect to work with that agent. Sit down with your agent, outline the areas, types of properties you will be targeting, maximum monthly payments including HOA, Mello Roos, property taxes, home insurance, utility bills, and anything else that will be converted. on your monthly liability. Knowing what you want helps you get there four times faster!
3. Use technology to your advantage. There are many real estate websites that allow you to set up an automatic search page and receive listings that match your criteria the moment the listings hit the market, or at any other regularity of your choosing. These automated tools allow you to gain an “unfair advantage” over most other buyers and real estate agents with no technical knowledge: if you’re the first to hear about listings, you have the advantage of making your offers before everyone else.
4. Make offers, more offers and some more offers! At a price range of less than $300,000 in most San Diego areas, it now takes 20-30 offers before one is accepted, so be patient, but also smart about it. Bid on realistic listings, where you have the best chance of your offer being accepted. If you have an FHA loan, don’t look for “change investment” listings, the FHA won’t allow it for 90 days after the original purchase date. Don’t bid on short sale listings, where the listing agent submits ALL offers to the lender and waits six months for the lender to accept an offer, turning the process into a lengthy auction. Do not submit to some REO listings if the REO listing broker insists on seeing my buyers firstborn child, DNA testing, and pre-approval from the listing broker’s chosen lender BEFORE they even see your offer. (By the way, anytime the REO agent requests pre-approval from your lender, understand that it is done solely to facilitate a sales pitch by that lender, so complain to the California Department of Real Estate, tell them that in your opinion, goes against the spirit of California’s AB957 “Buyer’s Choice Act” of 2009, especially if you already have your pre-approval from another lender! accepted? Sounds ridiculous, doesn’t it?)
5. Get creative! If you can’t get what you want directly, look for other ways to achieve the same results. Consider buying a fix-up house and using a rehab loan to make the repairs, consider buying a smaller house and adding square footage to the desired size of the house, consider new construction, lease options, seller rebate, or other creative ways to get in the house. Familiarize yourself with these creative strategies, they may be your ticket to homeownership today.
This is not the time to procrastinate and wait for your April tax refund before you start shopping for a home. Act now and take advantage of the last few months of the BEST time to buy a home in decades!