Buyers

Don’t Make These Mistakes!

As the market continues to improve for people looking to buy new homes, we are hearing a number of things that could cost you money. Let’s quickly examine 3 mistakes we are seeing some buyers make… so hopefully you can avoid them.

Mistake #1      Prices are going to come down 10%... 20%...or even more. I’ll buy when they do.

The chances of real estate selling prices coming down by anything like those numbers are almost non-existent. Why?

History! What do you think is the biggest annual decline we have seen in the selling prices in the Greater Daytona Beach Area at any point in the last 20 years?  The answer (using federal government statistics) is 3.04%... for the twelve months ending March 31 of 1995. This was the worst decline we saw… 3%... not 5, 10 or 20%. Over the 20 year period, the price range saw a low of -3.04% and a high of 32.22%... for an average return of 6.14% compounded annually. If we look at the results for the year ending each quarter for the last 20 years, over 80% of the time, the return was between -1% and 10%... and less than 4% of the time did we see prices drop.

So, history certainly provides no reason to believe prices are going to crash. If you believe prices are going to fall, you are guessing that some really weird and unknown event is going to happen… and investment decisions shouldn’t be based on guesses.

If you are waiting for prices to plummet, you are making a mistake. We do expect that listing prices will fall, but actual selling prices will remain fairly flat… and in many cases, those differences between listing and selling prices can be negotiated right now as sellers are becoming more realistic. Currently inventories of homes are high and the chances are good that you will be able to find the right house at the right price.

Mistake #2      I keep hearing and reading about the real estate “bubble” popping ... and prices are going to come back down.  I’ll wait for that to happen.

In one form or another, for years we have been hearing reasons why people should not invest in real estate. I remember buyers telling me they didn’t want to buy in at the “Top”… and that was in 2001. The buyers who had the sense to buy then are now sitting on huge gains.

Some “experts” certainly are saying the real estate market is going to crash… And someplace, somewhere, some day they will probably be right. But real estate markets are local, so the calls by the national investment “experts” for a national real estate collapse will almost certainly be wrong. Remember that many of those most pessimistic about real estate make their living by selling stocks, bonds and related advisory services. They have been suffering since the collapse of the stock market a few years ago and since so much money left Wall Street and went into real estate. They are eager for the return of that money.

But real estate crashes are rare and almost always are caused by a major loss in employment—like when the technology sector crashed and real estate values plummeted in Silicon Valley and other tech-dependent areas, or when NASA was moved from Florida to Houston in the ‘60’s. We have no major employers or industries in the Daytona Beach area and cannot be affected in this way.

If you are waiting for the local real estate market to collapse, you are making a mistake. We have no chance for a huge loss of employment and most sellers in the area are not desperate to sell, so prices in our area are very “sticky”… and are not likely to decline much, if at all.

Mistake #3      Prices aren’t going up… so I can just wait to buy.

At the present time, selling prices have pretty much leveled off; the big increases of the past few years have ended. So does that mean you can just sit back and wait?

No!  First, there is no guarantee that prices won’t take off again. Remember, the average price increase has been 6.14% over the last 20 years. Prices won’t stay flat for long.

Second—and perhaps most importantly—while price stability right now is in your favor, there is something else which affects your monthly housing payment just as much; that factor has not been stable and is likely to keep moving against you. Do you know what that is? Right! Interest rates…

Obviously, as interest rates rise, the mortgage payment on a conventional mortgage is also going to rise. In the last year (July 14, 2005 to July 13, 2006), the interest rate on the 30 year conventional mortgage, according to the Federal Reserve, has risen 1.08%. With that increase, you would need to borrow 10.61% less to have the same monthly payment. That’s right, if you bought a home now for 10% less than its price one year ago, your monthly payment would still be higher!

How likely is it that prices are going to fall 8-10% in the next year? Not at all likely, as we demonstrated above. And how likely is it that interest rates are going to rise? Well, the average rate over the last 20 years has been 9.49%... and today we’re at 6.74%. So even though we have already seen rates go up quite a bit in the last year, they are still very low by historical standards and could move quite a bit higher. The Federal Reserve has been raising short-term interest rates nearly every month (and with the value of the dollar falling, they are probably going to have to continue doing so)—so further increases in mortgage rates do seem likely.

If you are hoping that prices are going to come down, you still have to hope that the rise in interest rates doesn’t more than offset any decline in prices. You could be right about the direction of housing prices… and you could still lose money.

So, if you are waiting because you think home prices are going to drop, you also need to predict how much they are going to drop… and how much interest rates are likely to rise.

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The bottom line for most buyers today is that waiting is a losing proposition. There is a very strong likelihood that rising interest rates are going to more than offset any benefit you could achieve through falling prices. Waiting will probably cost you money!

Inventories are at all time highs. Asking prices are down in many cases and negotiating to get your deal may be easier than it has been for years. Don’t let your dream home slip away. Buyers are now in a better position than they have been for years… and waiting any longer may cost you money!

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The Castle Group is the leader in the sales of luxury homes in the Greater Daytona Beach Area, having helped more buyers acquire their luxury home over the last year than any other agent or team. Put The Castle Group’s expertise, experience and market knowledge to work for you! If you are looking for or considering the purchase of a luxury home or condo, call Castle today!

386-671-0800

Jerry@LuxuryHomes411.com