By Joe Brown
A lot has been written lately about the cooling of our red-hot real estate market, both in the South Bay and across the country. It’s hard to go a day without some news story suggesting the “bubble is about to burst” on the market, or the sky is falling, or something equally catastrophic.
But what’s missing in the avalanche of news coverage is the fact that while home sales have indeed slowed down, this current housing market offers a unique window of opportunity for savvy buyers and sellers to profit – a window may not be open again for many years if ever.
For the first time in quite a while, the stars are all in alignment for consumers: mortgage interest rates are near their all-time low, prices have stabilized, there’s a large selection of homes to pick from, and yet the prospects for long-term gains in the market remain strong.
Certainly, it makes a more exciting news story to dwell on the negative, but for smart consumers it is definitely more economically advantageous to seize opportunities as they present themselves. And this market does indeed offer some tremendous opportunities.
So who could benefit by this current market? You don’t need to read any further unless you fall into one of these categories:
- First-time buyers trying to break into the market;
- Existing homeowners looking for a new home;
- Consumers looking to profit from investment property;
- People planning for retirement; and
- Almost anyone looking to increase their net worth.
If you’re a first-time buyer who has been patiently sitting on the sidelines during this seller’s market, you couldn’t find a better time to get into the game. Prices have finally stabilized even as mortgage rates remain low. Add to that a good supply of homes, and you’ve got a window of opportunity that you rarely see. With rents going up, first-time buyers may pay little more for a mortgage payment than they do for their apartment today after considering tax advantages.
Because the pendulum has swung in favor of buyers, we’re seeing more sellers offering concessions than we’ve had in years. In fact, nearly every contract we get these days includes seller concessions. It’s not uncommon for homeowners to pay $10,000 or more toward a buyer’s closing costs. In other instances, sellers are offering to "buy down" the interest rate for buyers to make their home listing more attractive.
The point is that there may never be a more affordable time to buy a home than now. If you wait for prices to fall, you could be in for a shock. It’s a very rare year when the median sale price actually dips in California (more on that later). But even if they do go down a little, the savings could be more than offset by higher interest rates and fewer seller concessions next year.
For investors, now may also be a good time to buy into the market. Those interested in building wealth may find some temping sale prices on real estate. Savvy investors buy low (that’s now) and then trade up when they can get a higher rate of return somewhere else. Real estate investors also understand that leveraging can earn them greater returns than they can get with other investments. If a $750,000 property increases 10% in value, or $75,000, that actually equates to a 50% return on an investment if buyers put $150,000 or 20% down.
Those planning for retirement can also benefit by buying real estate now. Where would you be today if you had never purchased a home? Chances are your net worth would be a whole lot less than it is now. Now think where you’d be if 10 years ago you had purchased a couple of investment properties? Perhaps retired.
By owning real estate as part of your retirement portfolio, most of your retirement can be funded by others. The tenant, tax advantages and appreciation over time can fund quite a nest egg. When you do cash out, capital gains rules offer a much lower tax rate than the tax you’ll pay on your other retirement accounts. With proper planning, investing in real estate can be extremely effective in funding your retirement.
Over the years, real estate has been one of the greatest wealth creators. Not a lot has changed today, except that prices have temporarily leveled off, creating an attractive buying opportunity. Interest rates, selection, favorable tax laws, loan programs and seller concessions make this the perfect time to invest.
So what about existing homeowners? There are opportunities for you as well, particularly if you are interested in moving up to a larger home. Sellers may get a little less than they were hoping for in this market, but the good news is that they can more than make up for it on the move-up home.
If, for instance, your $600,000 home sells for 10% less, that’s $60,000. But if you are able to buy that larger, $1 million home for 10% less, that’s a $100,000 savings. If you were to wait for your existing home to go back up to $600,000, the move up home will most likely go up proportionately, too.
Despite reports to the contrary, the sky isn’t falling in on this market. It certainly has cooled off from the last two years, but those were record years. We’re back to a normal market – we just forgot what it’s like.
Those afraid of prices falling significantly should consider this: Since 1968, only five times has the median price of a single-family home dropped in California, according to the California Association of Realtors. Five times out of 38 years. And the average annual price increase during that time has been just about 9 percent.
So while much of the news coverage of the housing market has been dark and gloomy, there are actually a lot of bright spots for opportunistic consumers. The real estate market will always go in cycles. But by understanding the big picture, smart consumers can capitalize on this rare window of opportunity to realize their dreams.
----------------
Joe Brown is president and chief operating officer of Coldwell Banker Residential Brokerage in Silicon Valley, the area’s largest real estate brokerage.
No comments:
Post a Comment