Navigating in Today’s Real Estate Marketplace

By Ben Hawkins

Is now the time to buy? Are we at the bottom? Is this really a buyer’s market? I have been hearing a lot of these questions being asked lately. The only way to understand the answers to these questions is to understand the fundamentals driving the market.

The unfortunate reality is that there are 4 sellers out there competing with each other, helping to create far too much inventory. The players are builders, banks, investors, and the typical resale market. The addition of the banks, builders, and investors are creating an abnormal inventory and are the main cause of the market slow down. The slow down from these sellers is further increased because the houses that they are selling are vacant. The issue with vacant houses is that the owner will not go out and buy another house, creating the compound resale effect that we see in a normal market.

Here is a brief description of the sellers:

Builder/Spec Inventory: The builders we are concerned about are national and are publicly held. The builder can write down their inventory or value and push the loss into the following year. This allows them to sell at bargain basement prices while not absorbing the loss in the current year. They are still losing money but the shareholders are happy that they are selling houses.

Banks/REO/Foreclosures/Short Sales: The banks also have the ability to write down or devaluate their portfolios in order to take losses. The liquidity crisis is due to the inability of the banks to sell loan packages as collateralized debt obligations. Once they write down the portfolio, they have the ability to sell the packages at discounts to regain liquidity. This is also happening when the bank takes a loss on a property they own (REO) or when a pending sale can not go close unless the bank takes a loss (Short sale). Short sales are also typically not an option for a family that is going to repurchase because their credit is typically damaged in the process.

Investor/Fix and Flips: Investors range from your weekend warrior to full scale operations. These investors have bought properties that are now sitting vacant and were a big part of the run up in pricing. The speculative buying in some areas exceeded 25% of all sales. These houses add to the inventory. Most have improvement costs and holding costs that far exceed the new appraised value unless they were bought this year.

Resale: This is the ordinary family that wants to sell their house and buy another. This is usually the majority of the typical market place.

Why is this the time to buy? When the banks and builders are taking a haircut on their prices you know it is a buyers market. The builders and banks are taking major discounts to stimulate sales to keep up their liquidity. They have the ability to take losses this year. If the market stabilizes, you can bet that these concessions will disappear. The normal family really has no way to compete with the builders and their spec inventory. They do not have the capacity to come out of pocket to sell their house and be able to buy another and these owners will suffer unless they have equity.

Finding these properties is the key to making buys at pricing that is comparable to 2001 and before. Knowing local professionals that can help you find these houses is the key. If you are a first time home buyer or a homeowner with equity then you are in luck. Current owners may sell their house for less but will be buying houses with steeper discounts. The trade off can pay off big and provide you with the ability to make a life changing investment.

Happy House Hunting,

Ben Hawkins

President

Mortgage Capital and Investment