2008, The Year of Buying Opportunities

Dear Sue,

I am amazed by the number of buying opportunities available today. From short sales to foreclosures to deeply discounted new homes.

On one hand I think that I should buy everything I can get my hands on. But for some reason I have no sense of urgency. There’s so much to choose from. It seems like I have plenty of time.

Do you think prices will come down even more? I don’t even know if buying a home is a good idea. Every home owner I know right now has lost huge amounts of equity. What are your thoughts?

Wondering Wanda

Dear Wanda,

California experienced a phenomenal and unprecedented home buying frenzy beginning in 2000 and peaking in 2005. Buyers were frantically pushing prices up by offering more than the sellers were asking because buyers were afraid that if they didn’t buy now they would end up paying more later or worse yet, not be able to find anything at all. In many areas home prices actually tripled in that five year period alone.

Opportunists came out of the woodwork. “Flipping” became a household word. Flippers were turning properties over within days for sizable profits.

The incredible demand ate up the inventory. Properties were sold within hours of hitting the market. Multiple offers were the norm.

Easy, no money down financing fueled the buying frenzy. Imagine buying something with no money down and walking away with thousands of dollars in profits. Designer loans that didn’t require documentation and unverified stated income loans ruled. One could state that he or she made $10,000 per month and presto, one got the loan. Some designer loans were 125% loan to value. Yes, the buyers were actually paid up to 25% over the homes value to get the loan.

Times have obviously changed. There’s a saying that what goes up must come down. Such an extreme and rapidly rising market could only be corrected by the equally extreme and opposite market conditions that we are experiencing now.

Even though the markets are opposite, the forces driving those markets are the same. The primary force is demand. Demand is only fueled by financing. The feds are doing their best to make financing available. They are making it more affordable by lowering interest rates and bringing more money into the markets. The Government is also freezing the rates on currently held adjustable rate mortgages and new borrowers must meet stricter qualifications, all lending stability to the market.

The second big force, supply, has currently overwhelmed the demand. This too will correct itself in time as it always has. Remember how people felt during the recent “boom” time? They thought it would never end. Now people feel like this “slump” will never end. But it will.

According to www.housingmarketfacts.com, a national study indicates that on average, homes double in value every 10 years. The net worth of a homeowner is likely to be 46 times that of a renter. 60% of a homeowner’s net worth is in equity. I believe that California statistics are probably higher. In my mind these facts are the answer to all of your questions. Understanding the ups and downs of the real estate market and commitment to long-term ownership are matters of good Home &&s and Sense.