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12 NOV

Is Now a Good Time to Buy?

Is Now a Good Time to Buy?

Last February I rang the bell at MD Anderson.  It was 5 years before that I had my kidney taken out from stage 3 Kidney Cancer.  You bet I did my research and figured out the best plan of action in where to go and how fast I moved.  I interviewed hospitals, surgeons, talked it over with family, and 11 days later, poof, my kidney was removed.  I also went in strangely calm. I was happy with my life and my kids were old enough that they were formed.  10 years earlier when they were really little and I hadn’t accomplished certain things, maybe I’m not as calm.  Thankfully, everything worked out well. My situation was more straightforward in approach as Kidney Cancer has less options.  My Mom went through an esophageal cancer. Various cancer centers have different ways of treatments.  She had it at 64 and her age and the approach also came into play. If she was 74, and not in good shape, different strategies would been engaged. Thankfully she also had a good recovery.

Our daughter is at FSU right now. We worked with a college counselor, did visits, and talked to a million people. Opinions were varied but Jade made the right decision and went in state to FSU.  She wanted a college campus and the major fit her bill. She looked seriously at George Washington University.  Costs obviously are a factor but while she liked the city, she felt she could live in a city later but couldn’t do the campus later. Her major was also more to her liking at FSU which clinched it.  Really wasn’t so easy to figure out.

We interviewed several vendors both for our roof and pool remodel.  Different methods were offered and we weighed those and considered if we could put it off a few years at certain points.  Same when we bought our cars. I got a Jaguar EV.  It has a limitation of 220 miles, and we had to weigh whether we could deal with that as it’s harder to take to Tallahassee.

The overall quick soundbite answer is YES it’s a good time to buy a home and there is more opportunity than most realize, but it depends. There are a lot of personal variables to consider. It is not black and white and you need to really sit down and spend time with your real estate agent.  We had a sales meeting on this subject this week and are encouraging longer talks and get togethers at the beginning of the buying or selling process to help a client make the best decision for them.

We are getting this question a lot right now and understandably so because interest rates have more than doubled since the first of the year and people are rightfully concerned about the economy.  So, I’ll answer this question with some facts, experience, a crystal ball, and my 2 cents opinion. I’ll also break it down in segments as well.

  • Your Personal Situation
  • Understanding the marketplace
  • Understanding Palm Beach County and the Treasure Coast Marketplace
  • Opportunities
  • Risks
  • Strategies

Your Personal situation? 

Where you are in life and your tolerance for risk needs to be known by yourself and your Realtor.  I remember years ago my Mom telling me that my Grandparents because of their age were at the point in life that something would probably happen to one of them within the next 10 years.  For my Grandparents, waiting 2 years would be a long long time. Not so for a 24-year-old couple with 2 little ones. For us, the time to take a vacation last spring to the Southwest was critical because our daughter was a Senior in high school. Again, not the same for that 24-year-old couple.  Everyone has a different valuation on time.  If my Grandparents at that time lost 5% in value on a house, it wouldn’t have been a big deal.  The 24 year old couple who don’t have that type of savings or are in a high risk job loss industry might not want to risk that right now.

Stress Management

One of my clients years back was moving into an assisted living facility.  I was pushing them to do what I perceived as minor staging changes.  The husband took me aside and said “I know this could cost me money, but my wife isn’t well, and I don’t want to upset her.”  He did the same thing on the negotiation of the deal.  He gave me instructions to not push for as much possible (I did get the extra) but do it without losing the transaction.  The next $25,000 was not important to him.  For someone else, it would be the most important piece.  Everyone is at different stages of life and understanding your own situation is critical.

Set an appointment

Conversations on the listing side and buying side are too rushed.  Lots of questions we like to ask.

  • Are you selling something? Let’s say you are selling a million-dollar piece of property that dropped 5% to $950,000.  Sounds like a bad time to sell?!?  But how about if you are buying a $2million property that depreciated the same 5% to $1,900,000.  You saved $50,000 and probably have a lower tax basis.  Wait 2 years and if both properties rose 5%, there is a $100,000 reversal. The better deal is buying and selling now along with 2 years of enjoyment.
  • Early this year, some people said they were going to wait for prices to drop and settle before they made a move. An extreme example worth noting is a buyer who purchased at $300,000 and paid $400,000 in a bidding war at 2.99% would have monthly P&I interest of $1,347.   The same buyer who lets say got a bargin at $50,000 under list at $250,000 would have P&I of $1,364 at 7%.  Those same buyers who waited and now waiting for rates to drop. But if rates drop, prices will probably go up?!?

 

Understanding the Marketplace

  • Population Demand Growth

The highlights for Palm Beach and Martin Counties are still the same. Palm Beach County has a projected population increase of 7,200 + household gains per year conservatively over the next decade.  That’s 18,000 net gain of people a year.  Builders have slowed building and there isn’t anywhere to build in mass anymore east of 95 and the Turnpike.  This is a major point.

  • Lack of Supply

The lack of supply has become more dire. On top of that residents with a mortgage in the area don’t want to give up that 3% interest rate so fast. Therefore, supply increases are limited to more “must sellers” or people downsizing/making bigger jumps in property size, job transfers etc. This is the other major point.

If you think there will be big drops in property prices in our area, think again. There just isn’t the supply of land available or the residents buying investment property that occurred in 2005. Totally different situation.  Look outside today.  High of 84 degrees, low of 70 degrees.  Palm Trees. Shorts. The beach is within minutes of your house.  PBI not too much farther away.  Between the restaurants, golf, fishing, pickleball, clubs, Wall Street South, shopping, Kravis Center, Maltz, Lifetime Fitness (check that investment out), infrastructure of friends and family…. we are too much of an outlier. Chicago today has a low of 31 degrees. Buffalo will hit 38 degrees. Move there and you’ll see some price movement.  We are looking more at staying even to maybe 10% reductions for homes that are not updated or have problem locations and floor plans. However, add 6-8% for inflation and the real price is going down because of inflation (because it’s not jumping up 6-8% and changing the listing price to an inflation index.)

  • Building Starts

To make matters worse, building starts plummeted once we hit June 2022.  There are still 406,000 homes at some phase of being built in the pipeline. However, once we funnel through those, expect layoffs in the contractor population and demand of after products to really sink.  I grew up in the home furnishings textile business.  We always looked at housing starts to figure out the size of a spring or fall line.  9 months after a housing start, new homeowners would purchase drapes.  If we were producing a fabric line today, maybe we would skip the season.  Expect layoffs and job losses throughout the economy in this manner.

  • Resales are King

There is always an opposite reaction to a reaction. In housing this means 6 months from now when all new homes have been delivered and there is very little in the pipeline, resales won’t have much competition.  We are already under inventoried, and it will take forever to catch up to the millions of homes we are short as a nation.  Minuscule new building now is going to push resales higher in demand 6 months from today.

Why 2007-2014 Won’t happen.

When the market adjusted in 2007, it adjusted so quickly because of the mass number of foreclosures the bank put on the market.  That was combined with incredible job shedding, speculation, and fraudulent loan, and short sales.  But the foreclosures themselves destroyed the comparables.  Short sale prices were almost always marketed below what even banks agreed to sale at. This created a bottom from must sellers and lack of marketing that adjusted pricing at light speed.  NONE of those elements are at play this time. None.

 

Opportunities

  • Safety

Real estate is a safer landing spot that say Crypto although you could say that of almost anything these days.  But it’s true, with the lack of supply and high demand, the long-term prognosis for parking money and using your home is typically a safe spot.

  • Big Jump Risk

The biggest opportunity is that when the market turns, we could see a repeat of what occurred when the pandemic happened with rapid price increases and no supply. To me the biggest reason to purchase now is the marketplace 2 years from now could be worse for a buyer than during the pandemic.  The holding pattern of homes not indexing to the rate of inflation, coupled with high population growth, no new supply, no new land supply and working through the back side of a recession market could see price increases and crazed market conditions that occurred in the pandemic.  There were lots of the last new plots of land east of 95/Turnpike available at the start of the pandemic. In a few years that will be done.  I wouldn’t be surprised to see double digit jumps in pricing overnight a year or two out.

 

  • “A” Homes

The best floorplans, views, and remodels are more easily available. They may not have dipped in price and it’s still competitive, but you don’t have to write love letters and bid against 20 buyers.  When the market flips the other way, these will be the first to jump and they will appreciate the most.

 

  • Negotiation

Negotiation is back. Negotiate on the price without being ridiculed at. Find something wrong on the inspection, and most homeowners will fix it if reasonable. The lack of supply and ongoing movement of people will keep a Buyers’ market at bay but equilibrium is back.  There will be more give on homes that need work or have fewer desirable traits.

 

  • Other Things

Terms, loan acceptance, and closing dates are all back in play. VA and FHA are Kings once again.

 

  • No repeat of 2007

This won’t happen for several reasons.  There aren’t going to be job layoffs anywhere near that magnitude. Homeowners are great on paper as there isn’t the widespread fraud and adjustable ARMS that took place in the Big Short Market.  There isn’t the excess inventory and stupid homeowner investment in flips or speculative homes.  Therefore, as stated earlier, that whole foreclosure and short sale market with combined terrible economy, I don’t see happening.  Anyone waiting for that ship to come in will be waiting like the Waving Girl Statute in Savannah. If you’ve never been to Savannah, you’ve never heard the tale of poor Florence who came out waving at ships for 44 years looking for her long-lost love that never came.

Source: https://gallivantertours.com/

Risks

  • Life situation

Knowing what is coming up in life and worst-case scenarios are always the biggest risk. Your tolerance for stress should be examined.

 

  • Job Loss

If you are in the drapery industry and the last one hired, then maybe now is not the best time to purchase. Same if you work at Twitter!   It’s better to not purchase if you think your job could be at risk.  Be careful if you are in that situation.

 

  • Other Costs

College coming up?  Wedding?  New Roof needed?  Know your other anticipated costs.

 

  • Taxes and Insurance

Taxes (never look at what the previous homeowner pays as will get reset), homeowners’ insurance are both higher.  Know those costs going in so you don’t get surprised. Understanding Taxes, Homestead, Closing Costs  and  Dramatic Changes in the Real Estate Insurance Industry

Strategies

  • Rate Buydowns

2-1 Rate Buydowns

 

  • Other Loans

Getting a preapproval always is a good strategy. There are some products like doctors loans available with less down.  Assumable loans are not a viable option. The only assumable loan out there these days is a VA Loan and only if another Vet is purchasing it. However, the previous Vet loses their VA and has to assume liability. So, unless it’s a relative, it’s never used.  Hometown Heroes Loan Assistance also still has money left in it.

 

  • Date the Rate, Marry the House

That is an expression Mortgage lenders use. Rates dropped ½ a percentage point this weak on lower inflation data. While that might be temporary, the intended consequence of raising rates and putting pressure on job growth should lead to wages slowing down. Once the economy slows down, the Fed should lower rates. Or at least that’s the plan.  Thus Marry the House and Date the Rate as you can refinance in a few years.  I wouldn’t count everything on it and would advise to talk to a financial advisor about it but my best guess from talking to lots in our industry and in the economic sector, is that long term, rates will fall.

 

  • Understand Seasonality and when to strike if a Buyer or Seller.

It’s better to beat the market to the punch.  Lots of times when purchasing, it’s best to pull the trigger if you want that “A” home early in the process before February.  If not, the closer you get to people leaving (March 31), the better as prices typically drop in March if they haven’t sold.  Conversely, if you are selling and you want to make sure you sell, lower the price in late January if the market appears cool to get ahead of the market. Guide to understanding seasonality

 

  • Marketing Strategy

If selling, you need to understand the listing strategy. The days of hiring your “friend or cousin” are over.  Our Home ECHOnomics Guarantee tells you exactly what you buying for the commission you are paying out.  If the Realtor doesn’t have that (they won’t because their model puts the cost burden on the agent), then you are going to get stuck with no marketing and an agent without the income stream to pay for and execute a game plan.

 

  • Step Down

Be conservative.  If you are nervous, purchase a home one step below what you really want.  Maybe that’s a townhome or a smaller home instead of a forever home.  At least that way you can start enjoying and learn the area. If you adapt this strategy, get a good view and buy in an area that’s liquid so your exit strategy is quicker.

 

  • Pricing

If selling price on the 25/50/100. 25 50 100 Rule of Pricing

 

 

 

Jeff Lichtenstein is owner and broker of Echo Fine Properties, a luxury real estate brokerage selling real estate in Jupiter  and homes in Palm Beach Gardens, Florida. He has 20 years of real estate experience, has closed over 1,000 transactions, and manages over 70 agents in a non-traditional model of real estate that mimics a traditional business model.  Some publications he has been quoted in.

Feel free to ask him a question directly at jeff@EchoFineProperties.com including a complimentary real valuation of your home.

Posted in Open House Blog, Real Estate Tips on November 12, 2022 at 9:02 am.

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