Bonkers

March 22, 2012 By Jon Griffith Leave a Comment

Here we go again. The market is going bonkers, today…not 2 months from now, not 2 months ago…today. Right now. It’s bonkers so much that I’m having an extremely difficult time competing against multiple offers for the clients that I have who are looking to buy.

What’s It Going to Take to Buy A Home in Today’s Market?

That’s the billion dollar question, isn’t it. Here are some statistics updated today at 11:13 AM that might give you an idea of the state of the real estate market in Phoenix and surrounding ares.

There are 14,772 homes on the market. That includes ALL listings in ALL areas covered by the Arizona Regional Multiple Listing Service (ARMLS). In 2005, when bananas were falling out of the sky, we had about 5,000 on the market. In 2009 or so, there were 85,000 homes on the market.

If you know anything about supply and demand you’ll easily be able to identify that we are nowhere near a buyers market. We’re in a seller’s market where the seller calls the shots through the negotiation process for price and repairs.

Of those 14,772 homes, only 11,449 are single family detached homes leaving 3325 condos, town homes, apartment style homes, gemini, etc.

Of the 11,449 single family detached homes, 1,250 require short sale approval, 82 are what some people call “pre-approved” short sales, 1,255 are owned by a bank, 71 are HUD owned homes, leaving a grand total of 8,791 homes for sale.

So what IS it going to take to buy a home?

In a market like this, if you’re serious about buying a home, you’re going to have to let go. Let go of your ideal location. Let go of your ideal criteria. Let go of everything you have in your mind that determines what you will or won’t accept in the house of your dreams. Why? Because you simply don’t have much to choose from right now. There are far more than 11,449 buyers out hunting for a property, and word is spreading fast regarding scarcity. When this happens, there’s no longer a need to create urgency…it creates itself. The moment the national media breaks the news that “you’d better get out there and buy” it will be too late.

You’re going to have to be on the computer night and day waiting for new listings to show up, and when they do, you don’t have the luxury of waiting until the weekend. You’ll find yourself taking paid days off, sick days, or simply skipping out for lunch to hopefully see a home that just came on the market. And for those agents who once had a life? Leave it behind for the time being. You’ll be writing contracts and submitting them at 11PM at night or 2AM in the morning…whatever it takes to get your offer in front of the seller before they accept another.

Money!

If you don’t have your financing in order, forget it. You’ll need to come in with a strong offer, a large earnest deposit, down-payment, and a completed Pre-Qualification form. Got cash? Even better! Can you close quickly? Awesome!

If you’re lucky enough to open escrow on a property, don’t expect the sellers to do any repairs. After all, the ball is in their court. They have a line of people just waiting at the chance to purchase the house with cash, as is, waiving the appraisal and the inspection.

Man This Sounds Great, Should I Sell?

Filed Under: Buying A Home Tagged With: buyers, home, market, property

Who Can Afford A Down Payment?

December 27, 2011 By Jon Griffith Leave a Comment

As I’m reading through the latest predictions for the upcoming market conditions, I’m taken aback by one of the statements. In an article written by Jed Kolko, Chief Economist for Trulia.com entitled What the Cyrstal Ball Says about the housing market in 2012, he points out the probability of rental rates increasing, and that it would be a bad thing.

I believe the reason that it is perceived as a bad thing is part of the core of the financial problems we have in this country. The reasoning is this. If rental rates increase, and housing prices decrease, then it creates a great environment for buyers, “but only for prospective buyers who can afford the downpayment and qualify for a mortgage.”

I apologize if I’m completely out of my mind, but what kind of buyer do we want? Do we want to encourage people who cannot afford a home to buy a home? And what about cash buyers? There’s no mention of them, and they do exist, in droves.

As a real estate agent who doesn’t believe borrowing money is part of a sound financial plan, I have a hard time with the topic of mortgages. There are great deals out there, but we shouldn’t be waiting until someone wants to take advantage of a good deal to counsel them about the principles of money…mainly saving, which is what’s required to build up a down payment. If you haven’t figured that out by now, then you might want to consider re-signing your lease until you do. If you’re thinking about buying a house, know that a down payment is going to be part of the equation. Plan your life around a 20% down payment and your long term costs will be much less than if you go with a more “creative” financing plan.

As my financial coach Dave Ramsey always says, “creative usually means too broke to buy a house.”

Filed Under: Blah Blah Economy Tagged With: buyers, housing, market, mortgage

Inspections vs. Appraisals

October 31, 2011 By Jon Griffith Leave a Comment

In response to an article posted on DSNews.com entitled “Zillow: Prospective Home Buyers Overestimate Home Value Appreciation“ where the author writes about buyers being confused about the difference between inspections and appraisals, I thought I’d post a simple explanation should you be one of those prospective home buyers.

Appraisals

An appraisal is a professional opinion of a home’s value. When you purchase a home using a lender, while in escrow, the lender will order an appraisal to ensure that the home is worth at least what you’ve agreed to pay for the home. If an appraiser reports a value lower than the contract price, your lender will not underwrite the deal unless you cover the gap with funds at closing. You could also negotiate a lower price, or simply walk away. Either way, it’s simply an opinion of value used to gauge the agreed upon price. In a cash deal, a buyer might waive the appraisal, but he or she may also want to conduct an appraisal to ensure they’re not over paying for the property.

Inspections

When you and the seller come to an agreement on the price of the home you are considered “under contract.” In the Arizona Purchase Contract there is a section called Due Diligence. This is where your inspection time frame is defined, which is typically 10 days, but always negotiable. During that 10 days, it is your responsibility as a buyer to conduct as many inspections on the property as you feel comfortable with. Usually a single general inspection is enough, but sometimes the general inspector recommends that you find a specialist to confirm potential findings. Inspections have nothing to do with the appraisal, although an experienced appraiser will often identify potential problems that a general inspector would also find. At the end of the inspection period, the buyer writes a notice to the seller (the BINSR) with their findings, asking for repairs, backing out, or accepting the property as it is with no changes.

Both the Inspection and the Appraisal are considered contingencies on the contract that can kill the deal. If the house doesn’t appraise, you won’t get lending, or can walk away or renegotiate the price. If the inspection reveals a plethora of potential problems, you can also walk away or ask the seller to remedy the problems prior to close of escrow.

Both are recommended for cash buyers. The appraisal is required when you get a loan to buy.

Filed Under: Real Estate Basics Tagged With: buyers, contract, home, property

Guess What!? It’s a Seller’s Market…

May 9, 2011 By Jon Griffith Leave a Comment

You may have heard the terms “Seller’s Market” and “Buyers Market.” Over the past few years, we’ve heard the term “Buyer’s Market” far more than we have the other. These terms are basically how we describe who has more power to control the price of the home. It’s simple supply and demand.

When it’s a Buyer’s Market, the buyer has more control because there are more homes, or a surplus of homes on the market. It usually results in homes dropping in price to meet the buyer’s expectations.

When we’re in a Seller’s market, it means that the supply has been reduced and there are more buyers than there are homes for sale. When this happens, homes tend to sell faster, and buyers tend to find themselves competing for properties.

Absorption rate plays a huge role in the type of market we’re in. Absorption rate is calculated by dividing the number of homes sold in the past 30 days into the number of homes on the market. When the absorption rate falls between 3 and 6 months, the market is fairly balanced between buyers and sellers. If this number goes over 6, we’ll find ourselves in a buyer’s market, and when it’s below 3, a seller’s market.

Today is May 9th, 2011. In the past 30 days, 7,600 single family detached homes have been sold as evidenced by the Arizona MLS data. There are currently 20,970 on the market. So, today the absorption rate is roughly 2.75 months.

In other words, it’s a Seller’s Market.

Filed Under: Buying A Home Tagged With: absorption, buyer, buyers, market

What Makes a Buyer’s Market: Supply and Demand

February 9, 2009 By Jon Griffith 3 Comments

This is a pretty simple concept that can be over complicated by economists. A buyer’s market simply means that it’s better to be buying than selling. Why? Too many houses (supply surplus) and not enough buyers (no reckless lending.)

Supply and Demand

When a supplier (people selling homes) floods the market with too much product (houses) the buyers tend to take longer to choose what they want. As a result, sellers who are tired of waiting will lower their prices to spur the buyer into taking action. This is a natural movement that many sellers miss because they don’t understand the LAW of supply and demand. When the supply is low, buyers climb over themselves to bid on what product is available which drives the price up.

The red line represents the supply. The green line represents the demand. The point at which they cross is the market value or market equilibrium. This is the price that we aim for when we price a home.

The graph can be interpreted as such. On the demand curve (green) when the price of the product is $1.00, the number of units sold will be 100. When the price is $10.00, the number of units sold will be about 14. It’s the economists challenge to set the price of his product as close to market equilibrium as he or she can whereby the most money is made for the least amount of production. 100 units sold X $1.00 = $100.00. 14 units sol X $10.00 = $140.00, but 50 units sold at a price of $6.00 each is $300.00.

Shifting Curves

This is the important note for supply and demand. When supply is increased, the entire red curve shifts to the right by the number of units produced. Assuming demand remains the same, the point at which the lines cross will naturally fall and the price will naturally fall. If the price is not adjusted, the product will not sell. If demand increases at the same rate as the supply increases, then the price will remain the same because market equilibrium will simply follow along. True, more product will be sold, but the price will stay put. Remember, when supply and/or demand increases or decreases, the entire line shifts left or right. For example, if demand suddenly dropped off for a given product like homes, and there was an excess of supply or a surplus such as we have now, the price point would fall dramatically.

Buyers Market

In Phoenix, we have a surplus of homes. Nation wide we have a shortage of buyers because of tightened lending. In many cases, the buyers are really still there, but they’re just afraid to move forward and/or they don’t realize they actually can get a home loan. While the buyer’s market exists, it means the influence of movement on the supply and demand curve has shifted to the demand curve. Buyers can ask for more, and have more to choose from than ever before, so why not wait it out?

On the contrary, if it’s a buyer’s market and there is blood running in the streets, take advantage of it because you won’t want to be buying in a seller’s market.

Filed Under: Blah Blah Economy, Real Estate Basics, Real Estate Finances Tagged With: buyers, Buyers Market, market, Shifting Curves

The Benefits of Ownership

February 9, 2009 By Jon Griffith Leave a Comment

Buying a home doesn’t mean all of your problems will go away. There are plenty of responsibilities that come with home ownership, but the benefits far outweigh those responsibilities.

Owning a home involves a down payment, property taxes, potential home owner’s association fees, and other various expenses that can seem at first to be a burden, but when put into perspective, are all positive aspects of home ownership.

Down Payment – the downpayment becomes part of your home’s equity, or the amount of money your home is worth above and beyond what you’ll owe on it. Equity is what you would walk away with if you sold the home. Traditionally, since homes increase in value on average by 3% – 4% annually, your downpayment is now part of that investment.
Property Taxes – Did you go to school? Are you children in school? Will they be? Education is just part of what your property taxes pay for, and as I mentioned, contrary to popular belief, purchasing a home is not the most important investment you’ll ever make.
HOA Fees – The homeowner’s association is responsible for keeping your neighborhood looking good for the purpose of retaining property values. Nobody likes a run down neighborhood. There are other benefits that you’ll learn about in their documentation (Covenants, Conditions, and Restrictions.) Remember, not every neighborhood has one.

The fact that purchasing a home involves large dollar amounts is what typically drives the would-be buyer away. But let’s face it. Most of us don’t have $100,000 sitting around in our bank account, and so we remain stuck in a pattern of believing we cannot afford to buy a home.

So what makes buying a home such a financial benefit?

Tax Deductions – When you finance a home, part of the payment you pay to the bank is interest and part of the payment is equity. During the first 20 years of a 30 year fixed mortgage, the interest portion is actually disproportionately larger than the principle payment. Under current tax regulations, you are permitted to deduct the interest payments from your income to lower your tax liability. Renting does not allow this.
Appreciation – Real estate, over time, will increase in value by an average of 3-4% annually. In some cases more, in some cases less. As your home’s value increases, your equity grows, which equates to you and your family walking down a road towards financial independence and complete freedom from the rat race.
Equity – Part of your monthly payment goes towards chipping away at the balance of your loan and becomes equity in your home. Equity is something you can recover when you sell the house, provided the value has increased. When you rent, you don’t build any equity.
Buying Power – As the equity in your home grows, so does your ability to borrow that equity to improve your home or invest in additional properties down the line. While the reason we’re in this economic crisis is because of cash mongering greed, home equity loans are a potential solution to emergencies should they arise.
Economic Stability – A 30-year fixed loan is just that, fixed. The payment never changes. Rent continually shifts from lease term to lease term and over time can increase. Buying a home ensures your payments will always be the same.
Freedom to Choose – Owning a home gives you the right to do just about whatever you want to it, from the landscaping to interior decorating, you’ll no longer be bound by the landlord’s rental agreement and you’ll have the freedom to express yourself exactly how you want. Not only that, but you’ll also have the freedom to rent your home out to someone else. Renting out your home is a great way to continue to reap all of the benefits above without having to pay for it. In fact, your renter pays for it and helps move you toward financial freedom.

When you own, you have a voice, and you gain a sense of greater community, as though you matter more to the world. I have owned my own home since I was 30. I wish I had purchased sooner because I would be way ahead of the game. Get on it today! It’s time for you to buy a home.

Filed Under: Buying A Home, Real Estate Basics Tagged With: benefits, buyers, buying, equity, ownership