The Sky Is Falling !!!!

Hey All-

Everywhere you look someone is telling you how bad the real estate market is. Just watch the news once and you’ll see what I mean. Home prices are down. Sellers can’t seem to get their homes sold, and even if they do it takes what seems like forever. Inventory is high. Rates are increasing. Bad Bad Bad Negative Negative Negative How can anyone make sense of it all?

Let me try to put things in perspective.

First let’s take this from the Buyers side since it’s the more obviously advantageous position to be in right now. It is a “buyers market” right now, but what does that mean. First let’s take a look at the inventory on the market right now. With about 35,000 homes on the market in the twin cities metro area there has never been a better selection to pick from. If you can’t find your dream home in this inventory, you’re just not looking. Not only do you have this great selection, but you can get them for a steal. Sellers are not only dropping their prices, but they are paying closing cost too. There has never been a better time for first time homebuyers or investors. Yes, some of the zero down mortgage programs have disappeared but FHA programs have also recently been redesigned allowing more people to qualify. Now what about those pesky interest rates? Interest rates are at an all time low!! I repeat, interest rates are at an all time low!! This is not a gimmick. When my parents built there first new home their interest rate was around 18%!!!! And to make maters even worse, you didn’t even think about buying a home until you had 20% to put down. I really believe that we have been spoiled by temporary 4%-5% rates we saw in early 2000’s. The fact of the matter is that historically the norm is much closer to what my parents paid. I have a graph showing historic rates by year I love to show clients. The looks of astonishment are predictable and priceless. You can’t argue with the facts.

What about the sellers Ben? You can’t argue this market is terrible for a seller.

Well hold on now. Let’s think about this for a second. Most of the time when you are selling a home you’re going to turn right around and buy another, right. Yes you’re going to have to give a deal on the property you’re selling, but you’re going to get a deal on your new home. Yes you had to pay your buyers closing costs, but you will most likely have your new closing costs paid for. To make matters even better the odds are your new home will be more expensive. Most people move up in the size and/or quality of their home. This means the closing costs you pay out will be less than the closing costs you have being paid for you. Let’s take this one step further. Let’s say the home you sold had a market value of $300,000. Now let’s say your new home has a market value of $400,000. For the most part real estate appreciates (gains value) at a consistent rate across the board. For the sake of argument let’s say this rate is a modest 4%. Would you rather have 4% of $300,000 or 4% of $400,000? I think we would all pick the later. Your money has just made a lateral move but you are now collecting $4,000 more in appreciation. Unless you come to the closing table with extra cash you will most likely also get to claim more interest as a deduction against your taxes. Bad market?, no you come out way ahead. So you might have to have a little patience while your agent is finding the buyer for your home. Even this inconvenience can be minimized if you stage and price your home properly.

So you see, in the end this not such a terrible market after all. Please help me spread the good word to all our “chicken littles” out there and calm all the fears. People will always need a place to live and the market is just fine. Let’s stop grumbling and start taking advantage of this once in a lifetime opportunity.

Hope this helps, God bless