Florida Mortgage Blog

To Buy or Not to Buy, That is the Question

October 16th, 2009 10:30 AM by Preston Ware

Based on current sales figures, the U.S. housing market is having a wonderful time. Prices of existing homes show gains of 3.5% or more since April, and numbers of homes sold are 15% above the lows set in November of last year. Even experts as knowledgeable as Robert Case, of the famed S&P/Case Shiller index, were surprised by the resilience of the housing market over this last year.

However, despite these robust figures, investors are making smaller investments and are willing to wait out the market, according to Reuters. By wait out we refer to the fact that they are buying and holding against future profit expectations. These investors are willing to rent out property, as long as they sustain break even or a profit, until they see the market in full upturn. Only then will they resell at a good sized profit.

The rule of thumb for investors in single family homes is to buy a property that sells for no more than 15 times what it earns per year in rental. This allows investors to gain a return on investment and cover their mortgage costs. As many homeowners are forced out of their homes, and as young people enter a lower wage scale marketplace, these single family rental properties have an ample supply of tenants.

The important fact to note, if you’re just a plain old home buyer, is that investors are returning to the housing market in veritable droves. Not only single properties, but entire subdivisions in foreclosure are being picked up and held for rental, and, in some cases, flipped for a profit. For example, one investor recently purchased 50 empty units in a South Florida subdivision that was ravaged by Chinese drywall. The units are currently being gutted, reconditioned, and sold at a profit to people who want newer homes at 2009’s lower prices.

As in most economic climates that are moving back to a healthier outlook, when investors first tread into the market, it’s the best time to buy. Those who manage to make money come in early and purchase, before prices are bid up. They don’t dither on the sidelines, wondering whether or not the market will rise or fall. The savvy investors sell later on to the late comers who have been studying the market. These market watchers are enticed by the idea of making a fast buck. Of course byy then, it’s usually too late, because prices have already risen.

Right now, homes are relatively cheap. Remember, they slid, on average, 30-35% off their peak prices from July of 2006. For those waiting a further fall in prices because of the 4-7 million foreclosures that are expected to hit the market over the next 3-4 years, consider the fact that new home construction is at its lowest point in 50 years.

That means new homes are not filling up the market, so the inventory that’s available consists mainly of older homes. The additional foreclosures that banks release will simply fill in the gaps in inventory as houses continue to sell.

Three years ago there was a 29 month inventory of unsold homes, with asking prices at the stratospheric levels of 2006. Currently there is a 9 month inventory of unsold homes around the nation, with prices at much lower 2009 levels. If a stable market functions with a 6-7 month supply of homes, then statistics say we’re pointing to that kind of market very quickly.

With stability comes price increases, because supply and demand start to equal out. For those who cannot decide whether or not it is time to buy, look back at the recent real estate roller coaster ride. While what goes up may eventually come down, it is better to get on that roller coaster well before it reaches its peak.

Written by Marc Jablon, Realty Associates
Articles written by Marc Jablon:marcjablon@yahoo.com

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Posted in:General
Posted by Preston Ware on October 16th, 2009 10:30 AM


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