REAL ESTATE

Deception

As discussed in Chapter 7 of our publication When to Buy and When to Sell: Combining Easy Indicators, Charts, and Financial Astrology, and our previous Real Estate blogs, 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. Investment properties have now become very challenging as well, with potential “rent freezes” and new system regulations.

     Currently, the national average for a 30-year fixed rate mortgage remains slightly under 7%, technically increasing the “affordability” of purchasing a home in recent weeks (please see last month’s Real Estate – Affordability blog, dated 8-16-24). However, as also previously mentioned, in the past 3-4 years, inflationary conditions have resulted in the “doubling” of homes prices in many areas, record credit card debt among consumers (which negatively effects credit scores and debt-to-value ratios), rising rents, insurance, property taxes, home and car maintenance costs, as well as inflation concerning everyday needs (including food, energy, and other necessities). It is no different for investment property owners/landlords, who now face “rent and eviction freezes,” new system regulations, and increases in insurance and property tax costs. The fact that the increase in homes prices have also outpaced personal wages by 3-5 times does not help. For many, the approximate 1% drop in rates does not eliminate this price to wage increase imbalance.

      As also noted last month, there continues to be rumors of some “rent controls” and other programs to assist young/first time buyers, however, there is a risk of further inflation with other issues that this may cause. If these programs increase home prices further, re-appraisals and higher property taxes are likely to follow.

      Since the original release of last months blog, we added an addendum to the post, explaining some new developments regarding data reporting in the industry (similar to overall economic data) that has become somewhat suspect. Between under-publicized “revisions,” deceptive headlines, appraisal increases, and cherry-picking statistics, the accurate facts are very confusing. Having said that, recent reports/headlines from some leading real estate internet companies have indicated that “buyers are back” or “more buyers are searching for homes.” Be aware of the locations you may be considering as a buyer, as these numbers are selectively interpreted, and some only reflect the previously mentioned increasing defaults or forced sales. An increase in supply or “listings” may simply be a result of these noted defaults, rather than increased demand or the perception of more affordability. Some locales in the U.S. have significant decreases in pending sales, and mortgage applications, as well as high numbers of rescinded P&S (purchase and sales) contracts.

     Further reports suggest that there are some locations where the Central Appraisal Districts (CADs) are under heavy scrutiny for over-valuing properties, as they depend on property taxes for revenue, and many are “broke” due to mismanagement and other immoral issues. Many states also have built in “property taxes” for businesses (disguised as fees), which have come under protest. Recent court rulings have significantly reduced some of these highly over-valued charges.

     There are more important sets of data which include “Days on Market,” “Price Reductions,” and “Median Sales Prices” that tell a more accurate story. These categories have all been revised to the negative in most areas this past week. There are also some additional deceptive practices discussed in our publication, and previous blogs, to be aware of. Continue to be diligent with your agent to uncover all possible false, incomplete, or updated information before signing on the dotted line.

      As always, buyers 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, and home owner’s insurance (which have recently increased as noted), rather than just the interest rate (which often changes). Homes can always be refinanced when/if interest rates decline. There are also ways to pay down a mortgage quicker to save interest in the long run. A buyer should also make sure they have about 6 months in savings remaining (after the purchase) to cover the mortgage and expenses in the event of an unforeseen emergency.     

      Current conditions continue to be challenging for those who desire a “starter” home, or are only looking for a 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.