An Evolving Real Estate Market: The New Normal

With historically low mortgage interest rates accompanying super-low prices and a considerable supply of homes on the market, there is no better time to buy a home. In order to be successful it is essential to not think simply in terms of a shifting real estate market, but an evolving one in which the end of large jumps in housing prices, extremely cautious mortgage lenders, new emerging markets, and long-term commitments for both buyers and investors are now contemporary orthodox.

Pay-option adjustable-rate mortgages or ARMs are also a thing of the past. The majority of these type loans fashioned by banks in the 2000s as a more exotic mortgage option that allowed borrowers to “leverage up” to a much more expensive house payment were clearly unaffordable, resulted in large-scale delinquency within three months of closing. The first thing to consider then is that when you want to buy a house you must have enough income to support the mortgage. Along with a job, every borrower must also have some sort of down payment. Now considering that the only basic loan types available are 30-year and 15-year fixed-rate mortgages, you can no longer leverage up your mortgage, and housing prices will remain far more stable. In short, buy now while it is opportune, however, don’t expect huge jumps in home prices.

Most home buyers cannot afford to purchase a home with cash out of pocket, and most lenders do not want to approve a mortgage application unless you have an extremely good FICO score (700 or higher); you have plenty of cash (for your down payment, closing costs, and a healthy cash reserve); and you don’t have anything amiss in your financial data. Having your loan application approved by another competing institution is another plus, which only goes to say that by qualifying to get a loan you are showing other lenders you do not need them. Additionally you need to make sure the property appraises at or above the contracted price and that the neighborhood is steady in the market. As appraisers continue to take the blame for the housing crisis--for over appraising property in the boom years and under-appraising now--it’s going to be tough so long as appraisals at present come in so low as to break more than 75 percent of home sales.

Finding worthwhile short sales and foreclosures usually requires the help of a competent hired agent who has connections with the foreclosure-sale (known as the real estate owned, or REO) department of big lenders and can help you through a discouraging negotiation cycle. For example, in order to buy an HUD home (an Federal Housing Administration foreclosure), you’ll need an HUD-certified real estate agent who can help you make an offer at HUDHomeStore.com. Unfortunately the agent may or may not tell you that short sales and foreclosures are often damaged properties that will require upwards of tens of thousands of dollars in maintenance, rebuilding or renovating. Play it safe and look for sellers who have plenty of equity and need to sell, but are facing a neighborhood full of foreclosures. Homeowners, in high anticipation of a housing market rebound, are desperate to refinance or sell, especially the more than 25 percent who are underwater with their homes. Consequently, most sellers will price the home in order to compete with foreclosures and you’ll scoop up a property that is in much better shape and will require a lot less maintenance, renovation, and upkeep.

Buyers should note that the days of buying and flipping houses every 24 months and collecting a treasure chest sum of tax-free profits are over. Long-term plans, whether you are buying as an investor or plan to live in the property, will ensure that you don’t lose money after factoring the costs of sale. Even investors who are buying foreclosures and fixing them up might not be able to resell them so quickly, and they may find that lenders won’t securely finance their buyers. So while the rest of the market catches up, long-term plans will best allow you to bring in the money.

Besides being an amazing time to buy a home, it is an equally favorable time to buy an investment property. There is massive profit to be made in real estate, though not simply by quickly flipping properties, as was the mistake of many investors who could not get out of their properties in time when the real estate market crashed. Purchase a foreclosure or two (or as many as you can find the financing for), and again, think long-term by focusing on how much income you can generate each month. If you buy a foreclosure in the Atlanta area for $75,000 and can get around $800 to $1,000 a month in rent, that’s a terrific return on investment.