REAL ESTATE

Is It Time?

       As discussed in Chapter 7 of our publication When to Buy and When to Sell: Combining Easy Indicators, Charts, and Financial Astrology, and our Real Estate – Do I Buy? blog, dated 4-15-24, the purchase of a home may be one of the biggest decisions to make in one’s lifetime. For first time buyers, which are usually in their late 20’s to early 30’s, the process can be very harrowing and nerve-wracking.

     Recent housing market conditions have not favored the buyer, although that may finally be starting to change. Residential housing prices have started moving slightly downward in many locations, as inventories have started to rise. Although some “bidding wars” continue for certain desirable homes and locations, the fierce competition has cooled due to a percentage of buyers being “priced out” of homes, and/or simply waiting for better value, creating much less demand. 

     One main reason for increased inventories, unfortunately, is the increasing number of mortgage loan defaults over the past several months. Make sure to remain unemotional, and treat the potential purchase like a business. The overpaying/bidding is starting to catch up to some buyers who over-extended themselves financially. The ensuing price decreases (many more property owners are reducing prices when their homes won’t sell) in many areas will create more affordability. As mentioned in our publication, it is not wise to forego inspections or appraisals, just to overpay for a home, if you can help it. As prices come down, and original list prices get reduced, negotiations will be possible again. Recent reports have also revealed that new mortgage applications have decreased, as well as housing starts (homebuilder permits), which supports the decrease in prices over the last few months.     

     Condominiums have recently undergone a rash of government regulation changes, especially for units over 25 years old, which has caused widespread “special assessments” in condo buildings and complexes across the nation. Special assessments are basically extra charges to condo unit owners, in addition to mortgage and HOA fees, whenever a project/repair is necessary beyond the normal maintenance to the property. These charges are normally divided equally among the unit owners, and are voted on by the HOA board members. New safety and environmental regulations are now starting to take a toll on owners, and can be very sizeable (one condo entity in Florida recently surprised their owners with a $170,000 assessment – each!). Owners who cannot afford this assessment are choosing to sell at major discounts, while others are being forced out with loan default. Additionally, for every resident that leaves/sells, their share of the assessment charge is added to the remaining owners, thus increasing the price. Condo inventory has skyrocketed, and it does not appear this will change anytime soon. For anyone looking to potentially take advantage of these defaulted units, take caution. First, ensure that all assessments have been resolved and completed, and are not part of a future charge. Second, ask to review the associations monthly meeting minutes, (where all business is discussed) for the past 12 months, as they are documented. Third, officially ask (through an agent or in writing) the association president what the future plans are for any assessments, as well as any planned increases in the HOA fees. If this information is declined, it is best to steer clear.

      Multi-family homes have also undergone a change in ROI (Return on Investment) over the past few years in many areas. One factor is the “rent-freeze” during the pandemic, that caused major issues for landlords, who were still obligated to pay the mortgage. In additional, new safety and building regulations have also come at a high cost, forcing many defaults and discount sales. Purchasing a duplex-style 2-family property may still be beneficial in the right situation, if the owner is to live in one unit. Make sure to have sufficient savings to cover the cost of the other unit if you choose this route.

      Although current conditions continue to favor “all cash” buyers, as they are unaffected by the interest rates (remaining high), lending remains very tight for new buyers.

      There are additional “behind the scenes” developments in the real estate sector that most are not aware of, that should be considered before deciding to buy a home. If seeking a new construction home, especially in a new development, there are homebuilders, who are sitting on unsold properties, that are “faking” sale pending status on vacancies to give the illusion of heavy demand to keep prices high. When a few more properties are sold at their desired price, they then remove the pending status, which was false in the first place. There are yet others who will “hide” lower priced sales by combining all sales prices in a development under ownership of one entity, instead of each owner separately, giving the illusion of a higher “average” sales prices. There are predators out there if you don’t know what to look for, and make no mistake, many of the individuals involved are looking out only for their own interests (hopefully not your agent).

      Commercial Real Estate has also been in a crisis for quite some time, stemming from the widespread business closures during the pandemic. Many commercial loans have defaulted and many more are coming due by the end of 2024, and in 2025. Business owners have suffered severely from the forced closures, and employees working from home, while lending institutions have incurred major losses from these defaults. As a result, there many vacancies, abandonments, and others who must sell at high discounts to salvage some funds. There is also no impending demand for these buildings, as some of these issues persist. Be extremely careful if considering purchasing an investment property that contains a business, which was a very solid investment in the past.

      Those who plan to settle into a single-family home for decades, and have sufficient down payments, should pay more attention to the price of the home (which will never change), the property taxes (which periodically rise), and home owner’s insurance (which has skyrocketed in some locations due to extreme weather), rather than the interest rate (which often changes). Homes can be refinanced when interest rates decline.

      Current conditions may not favor those who are desiring a “starter” home, or are only looking for the short-term purchase. Always confer with your financial advisor and an experienced agent prior to making this important decision.

      Please visit the website www.augustassociatesllc.com for home values, listings, and professional assistance.