Home sale activity increases during the summer months & decreases during the winter months.

Fred Solomon from Solomon Financial Mortgage reports:  Home sale activity increases during the summer months & decreases during the winter months.  So, using this info, the best time to sell would be during the summer & the best time to buy would be during the winter.  How many people do you know are looking to purchase homes on Christmas day? 

However, with the housing crisis still unfolding, I certainly don't want to buy property yet, right? But since mortgage rates are at all-time historic lows, how can I pass up this opportunity?  At all of our workshops, I ask by a show of hands, how many people think it is a good time to buy right now?  The answer is consistently, all of them.  In fact, I am actually looking for people who don’t have their hand raised to ask them why they don’t think it is a good time to buy. 

 Then, I start explaining some compelling statistics like in 2008 we had 2.6 million homes go into foreclosure.  Currently, 13.2% of all the loans in the US are delinquent.  The loan business is a $11.8 Trillion business.  According to a recent 60 minutes special, they are predicting $2.6 Trillion of loans to go into default by 2011, which is 22% of all outstanding loans in the US.  So, we are in the 4^th or 5^th inning of a 9 inning baseball game - http://www.cbsnews.com/stories/2008/12/12/60minutes/main4666112.shtml

 Now, after explaining all these statistics, the next question I ask is, “Out of the people who just raised their hands, how many people think property values are going down with all these foreclosures we have now and the ones that are coming?”  What percentage of people raise their hand?  All of them.  So, I go on to explain that you guys are telling me that it is a good time to buy but real estate prices are going to drop?  In other words, if a foreclosure closes in your neighborhood, what happens to the value of your property, up or down? 

 

Now, another important question I ask is, “How many people want to buy a stock if you know the stock price is going to go down in value after you buy it?” 

 

Here’s the difference between Real Estate and Stocks.  When people buy stocks/mutual funds they pay cash for the entire amount.  When people buy real estate, a very large percentage of people finance the transaction.   So, here’s the moral to the story.  If you are paying cash, you might want to wait to see what happens with property values over the next 12 – 18 months.  We recently had a bank account faxed over to the office with about $35 million in it and they wanted to buy some foreclosures and REO’s.  I asked the person who sent the bank statement over, this question, “How are you going to pay for the properties?”  The response was, “With cash”.  I told him, “I would love the business, but are you aware of what is going on right now?”  I went over all these statistics with him and further explained that you should probably hold off to see what happens over the next 1 – 2 years.  He agreed. 

 

I perfectly talked myself out of a big deal. 

 

Now, if you are like most people and you are going to finance the property, now is probably a great time to buy due to all-time historic low rates.  There is no guarantee that rates are going to remain this low, if/when property values come down some more over the next 1-2 years.  So, I rather take the guarantee and have all-time record low rates and know that as long as I own the home for at least 7 years, it is going to be worth more than what I paid for it.  That’s my personal investment philosophy.

 

Also, the State of California and the Federal Government have added a few more incentives (up to $8k in tax credits) recently.  If you are a 1^st time homebuyer (or you haven’t owned a home in the last 3 years), the Federal Government is giving you a $8k tax credit (that does not need to be repaid).  I am hearing that they are going to extend this credit another 12 months. 

 

Finally, some better news in Real Estate - the Pending home sales index based on purchase contracts signed in March rose 3.2% as 1^st time buyers waded into the market to take advantage of favorable prices and all-time historic low interest rates - http://www.nytimes.com/2009/05/05/business/economy/05econ.html  

 

The last few months we are seeing multiple offers on properties & the lenders have millions of properties (REO’s) that are just sitting there vacant.  We call that “Shadow Inventory”.  My guess is that we have enough REO’s to last us the next 5-7 years.  Hold on to your lug nuts because Mr. Toad’s wild ride is just taking off.

 My Brother & I are buying cash flowing Short Sales in Palmdale & Lancaster right now.

 

Frederick Solomon, Jr.

Real Estate Education & Financial Coaching

(949) 222-0240, ext 221  /  Cell:  (714) 403-7334

(866) 421-1697 - fax

 

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