Author: Todd Kolasch | Total views: 22 Comments: 0
Word Count: 1096 Date: Tue, 24 Feb 2009 6:13 PM

How Will Real Estate Respond to the Stimulus

Ah, the million dollar question. According to the National Association of Realtors a few hundred thousand extra transactions will take place as a direct result of the real estate portion of the recently signed stimulus package. The provision directly responsible is the $8000 tax credit for first-time home buyers that does not have to be repaid as was the case for last year's ‘credit'.

While I am convinced double that amount for any buyer this year would have brought everyone off the sidelines to purchase, we'll take what we can get. I'm proud of my fellow real estate professionals for fighting to ensure our clients at least didn't lose anything from a buying perspective, but my opinion is that the government lost an opportunity to truly allow real estate to lead an early recovery. More incentives and tax breaks should have been given to absorb the current and upcoming inventory of foreclosures, while at the same time discard any plan that uses the tax money from the 92% of homeowners that are paying their mortgages....but I digress.

What really matters is that we remain in the same wonderful buyer's market. It has improved for first-time buyers for sure with the new credit. If you have not owned a home in the past 3 years or are a first-time buyer, find a good real estate agent pronto to ascertain your options as this is the definition of ‘buy low.'

It's still wonderful to sell and buy in this market. As you've heard me say many times, it's all relative. Here in Northern Virginia, whatever you lose on the front end (your sale), you gain on the back end (your purchase). You simply want to sit with your agent and go over a net sheet to see the opportunity I'm talking about.

One ‘rumor' that has been out there the past few weeks is this idea that the feds are going to mandate a 4% interest rate among banks to spur things along. This did not happen and there's no talk that it will. Interest rates are driven by market forces and are still excellent.

So, the jury is out as to how much the stimulus plan will help, but regardless... buyers, get out there. I'll next be reiterating the necessity to educate yourselves on the differences between short sales, bank owned properties, and ‘normal' sales by homeowners. Here in Northern Virginia it is imperative to understand the differences and I'm sure it is the same in your neck of the country.

It's the classic question we've encountered in recent years, but mostly these past several months. It's the human nature aspect of group mentality...a paradox that will forever exist and which causes many real estate agents to become psychologists for their clients rather than experts in real estate.

What do I mean by paradox? Well, consider the stock market in 2000 when stock prices were sky-rocketing and the values were not justified by the technicals. It was clearly a situation where the bubble was bound to pop any day. But rather than sell, or, better yet, not buy at these inflated prices, folks continued to buy as to not ‘miss out on the upside.' It was the classic goal of trying to time the top. It was even difficult to convince people to sell half of their position to at least realize some profit. The majority would not do this and we saw the result to millions of investors trying to time something that cannot be timed.

Did we see the same thing in real estate in the latter part of 2005? How many kept buying thinking the values had to continue as ‘times were good.' It was easier for some of us to see...I conducted hundreds of settlements for buyers that had awful loans that were sure to come back and bite them; a 100% financed loan with a negative amortization schedule after 1 month for a buyer with a low paying job and credit score was clearly a future default in the making.

So what separates the financially successful from those who participate in this group mentality that says ‘wait' when one should buy, or ‘buy' when one should wait? The answer is that the former realize that they can never sell at the peak or buy at the bottom, but if they pay attention and buy when conditions favor buyers they will always do well over time.

Folks, it's a buyers market. Home values are down, inventory is up, rates are low...and as an additional bonus, other buyers qualified to buy now are waiting because of what I've been talking about in this article.

The only thing left to do for those ready to take advantage of good value is team with a good real estate agent. Look for these traits when seeking a partnership with a real estate agent:

•1.) He/She must be your local economist of choice. He must be able to give real data that counters the constant negativity of the media that is in many cases poorly informed. I personally am a real estate agent in Northern Virginia, and I must be able to convey how real estate in cyclical and what goes down will come back up. Couple this with realistic expectations that the days of expecting a financial windfall from your home by buying and selling every few years isn't going to happen again. Real estate is a great investment through modest appreciation plus debt paydown.

•2.) Your real estate agent must understand why you are buying. Whether it's retiring, getting married, divorced, job relocation; your agent's ability to understand the reiterate this as you view homes help keep the buyer centered in their decision making process. Buying a home is emotional, and buyers often come across the home that perfectly meets their ‘why' but they're reluctant to pull the trigger until I go over their ‘why' again and they are able to see more clearly.

•3.) Finally, a good real estate agent can effectively help buyers get through the reluctance attached to a shifting market like we're in now, thus the reason for my article above. If the atmosphere is wonderful for buyers, then buy. Once the market turns, it turns quick and suddenly sellers won't pay closing costs, you are now competing with other buyers on your dream property, and suddenly it's no longer a buyer's market.