WARNING! If you are serious about buying a home in 2010, you may not have much time left! Now that the 2007-2009 recession is over, buyers are returning en masse to the real estate market. However, what most buyers don’t realize is that there are many forces working against them that can make it hard to find real bargains in the spring and summer. Here are five key forces shaping the market early this year, and you’d better keep an eye out for them:
1. As part of the massive stimulus package designed to support the housing market, the Fed has been buying mortgage securities for more than a year to maintain liquidity in the housing market, which has also artificially supported rates below 5%. However, this portion of the stimulus ER expires in March and it is already driving rates higher ahead of the program’s grand finale. What does it mean for the mortgage market? It means come March or April, you won’t find rates in low or mid-5% anymore. Most economists and financial journalists agree that we will have 6% mortgages by the summer. What does it mean to you? Have your loan approved and fix the rate no later than mid-February!
2. With “normal market” demand for mortgage-backed securities still very low, lenders will further tighten their underwriting guidelines. The preview of this was demonstrated in December 2009, when following FNMA and Freddy, all lenders increased credit score requirements for prime mortgages by 20 to 40 points, FHA followed them with the minimum score increase from 595 to 620, and some lenders made 640 as a minimum score for FHA or other government-backed loans. In the summer, the credit system will most likely tighten even more, as the banks will have a much smaller market to sell their loans to, forcing them to borrow only the crème de la crème of the harvest to bet on. If you’re not one of them, you may need to be at least 25-30% down, ratios below 30% and score 750 to have any chance of a home loan.
3. Unnoticed by buyers, the government has passed a number of new laws over the past two years, all of course under the much-lauded slogans of helping Joe the consumer. In reality, these new laws have virtually eliminated a mortgage broker as a viable player in the market. The government blamed the brokers for forcing “creative” mortgage products on uneducated consumers who couldn’t afford to pay for them, but the reality is that the brokers were only selling products pushed to the public by BANKS! The truth is that the brokers do not offer their own products, brokers do not participate in the meetings of the boards of directors of the banks that decide which financial products to offer to the public, brokers only sell what the banks offer if the public asks for it the. In 2006, brokers accounted for 60% of all loans issued in this country, by the first quarter of 2010 – less than 5%! Why should you worry about that? Quite simply, while having virtually unlimited access to billions and trillions of your taxpayers’ money, the banks succeeded in eliminating the one serious market power that has kept their mortgage rates competitive for the past decade. With brokers gone, all loan production now goes to retail banks with their “friendly and knowledgeable” employees who don’t care if you buy their mortgage today at 7% or not because they are paid on salary by your savings deposits and unfair banking fees, and because your only alternative is to go to a retail branch of another bank where you will have just as much competence and desire to lower rates as you did at the first branch. Consider this: the banks have quietly managed to monopolize a market worth $10-15 TRILLION DOLLARS, and their profits (divided between your mortgage rate and the current Fed Rate, which is 0%) per loan are the highest they have been in history! Did you get a thank you card from your bank’s CEO last year for helping the banks with some free money?
4. The tax credit program for home buyers also ends in April. You must be in the deposit by April 30 and close the deposit by June, which means that in March/April we will see masses of latecomers trying to take advantage of the program and inventory of homes at the last minute, with especially in the 200-400K price range will come under a lot of pressure from buyers, just as we saw in October and November 2009, before it was announced that the tax credit program will be extended. This time it’s different – there won’t be any more overtimes. This was the last renewal, and those who missed an opportunity to take advantage of this program because there was no stock in the market will try to buy something this time.
5. March is traditionally the first month of San Diego’s official buying season. In my 10-year spreadsheet, sales in March represent an average 30-50% increase in closed sales in February of the same year! Believe me, this year will be no different. However, those who wake up late and start buying a house in March will face much tougher competition and will be forced to bid on properties beyond what they can reasonably estimate for, which will force the buyers to pay their down payment. increase or get discouraged. and back on the sidelines.
The housing market has been battered so badly that even the bitter pessimists have started talking about a turnaround. Some are still talking about a huge “shadow inventory” of homes that the banks are supposedly holding back to prevent the market collapse and that when it finally does the market will tank, but this conversation has been going on since late 2008 and no one knows when and if this inventory will ever hit the market. These days, the banks can dump four or five times as much stock into the market, where 10-30 home offers are attracted in the first week, and the buyers will just swallow them and move on.
So, what should you do now to take advantage of the situation in what’s left of the real bargain-hunting season?
1. Pre-qualify your loan now, don’t wait for that tax refund to hit your bank account. If you need to borrow money from the relatives for the down payment, do it, you can pay it back with the tax credit, with your tax refund, or do their laundry for the next 30 years, but make sure your loan is fully approved at the highest possible amount and keep it handy when you make offers. No one is seriously looking at your offers today unless you can add a solid loan approval along with proof of money for down payment.
2. Make sure you have a clear idea of what you are looking for and that it is realistic. Don’t ask your agent to send you everything from Bonsal to San Ysidro in the range of 100,000 to 800,000 and expect to work with that agent. Sit down with your real estate agent, outline the areas, types of properties you’re targeting, maximum monthly payments including HOA, Mello Roos, property taxes, home insurance, utility bills and anything else that becomes your monthly responsibility. If you know what you want, you will achieve it four times faster!
3. Use technology to your advantage. There are many real estate websites that allow you to set up an automated search page and receive offers that match your criteria as soon as the offers become available, or at any other regularity of your choosing. Such automated tools allow you to gain an “unfair advantage” over the majority of other non-tech-savvy buyers and brokers: being the first to know about the offers gives you the advantage of offers before everyone else.
4. Make offers, more offers and even more offers! In the sub $300,000 price range in most parts of San Diego, it now takes 20-30 offers to accept one, so be patient, but be smart about it too. Make offers on realistic lists, where you have a higher chance of your offer being accepted. If you have an FHA loan, do not go to “investor flip” listings, FHA does not allow this for 90 days from the original purchase date. Don’t make offers on short sale offers, where the listing agent sends ALL offers to the lender and waits six months for the lender to accept one offer, making the process a lengthy auction. Don’t subject yourself to some REO listings if the REO listing broker insists on seeing my buyers’ firstborn child, DNA testing, and lender preapproval of the listing broker’s choice BEFORE they even look at your offer. (By the way, when the REO agent asks for pre-approval from their lender, understand that this was done solely to facilitate a sales pitch by that lender, so complain about it to the California Department of Real Estate, tell them that in your opinion that it goes against the spirit of California’s AB957 “Buyer’s Choice Act” of 2009, especially if you already have a pre-approval from another lender!If you end up posting 20 offers on REO listings, does that mean you must be pre-approved by 20 lenders BEFORE you even know if your offer will be accepted? Sounds ridiculous, doesn’t it?)
5. Get creative! If you can’t get what you want right away, look for other ways to get the same results. Consider buying a fixer-upper and using a rehab loan to make the repairs, consider buying a smaller home and they’ll add square footage to your desired home size, consider new construction, lease options, seller returns or other creative ways around the house. Get familiar with these creative strategies, they could be your ticket to homeownership today.
Now is not the time to procrastinate and wait for your April tax refund before you start looking for a home. Act now and take advantage of the last few months of the BEST time to buy a home in decades!