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An article by CNBC reports that home sale cancellations increased by 16 % of pending home sale contracts. The increase has taken many in the industry off guard including the chief economists at the National Association of Realtors (NAR) who is baffled by the increase, that according to CNBC.
The rise in cancellations shouldn’t be a surprise to anyone, especially those working in the industry. Distressed properties including short sales are difficult and lengthy transactions that tests the patience of both the buyer and seller.
Short sales still make up a big chunk of inventory in states like California, Nevada, and Florida who have been ravaged by the Real Estate collapse. We must also consider the current state of the economy. High unemployment, out of control debt, and an uncertain economic future are making buyers think twice before they go through with purchasing a home. To put it bluntly, Americans are afraid. They’re afraid of losing their jobs, their savings and their homes. It’s no wonder why buyers are getting cold feet.
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Since the Real Estate bubble burst several years ago short sales have become a popular way for homeowners to escape foreclosure and rebuild their finances. Despite the positives, short sales have gained more of a bad reputation as of late, mainly due to the length and complication of these kind of transactions.
Buyers and sellers alike have grown increasingly frustrated with the process since the average short sale can take ninety days to six months. There are cases where short sales have taken up to a year or longer to close. Many buyers who submit offers on short sale properties end up walking away because of the lengthy process.
The reason short sales are so complicated is because there are so many parties involved unlike bank owned properties where you are just dealing with the bank. If you decide to purchase a short sale, you want to make sure your Realtor understands the process and is experienced in dealing with short sales.
Most importantly, you need to understand the pros and cons when it comes to short sales. Remember that once you submit and offer, don’t expect for the property to close anytime soon. It simply becomes a waiting game. If your selling your home as a short sale, make sure you meet with a tax and credit specialist before you decide to short sell your home. A short sale can have credit and tax implications.
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I absolutely love cars. I know I know your wondering why I’m talking about cars in a Real Estate blog. I’ll get to that in a minute. Anyway, my favorite kind of car are your American muscle cars. I own a Mustang which is an absolute bute. Of course I share an affinity for European style cars like BMW, Mercedes, and others. What does that have to do with Real Estate? Well I think the home you own and where you live should be able to accommodate the vehicle you drive. You don’t want to be driving your lambo in the streets of New York would you? To appreciate open road cars, you need well…. the open road. States like my home of Florida are great for cruising with the top down because of open highways and plenty of road to break in your new sports car. As far as the home, you want a property with a wide drive way and a spacious garage to house your favorite vehicle. I know this is a no brainer, but you will be surprised how many buyers purchase homes with a garage and driveway that doesn’t appropriately store their vehicle. A car just like a home is a reflection of your personality. You want to emphasize that as much as possible. There is nothing wrong with a little showing off.
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The phrase “the right time to buy” has been overused by agents the last few years due to plummeting home values. This phrase is more relevant today then ever has home prices continue to reach record lows. So if you were to ask me if it’s the right time to buy? I would say an absolute yes. Home prices are at their lowest levels in recent memory, which makes it the right opportunity to purchase a property. The government has made attempts to stimulate the housing market through tax credits and other measures but have failed to stem the avalanche of distressed properties that have taken up a large portion of inventory across the country. Prices will most likely continue to fall because distressed properties are depressing home prices. With a negative economic outlook on the horizon and rising unemployment, it is likely that more Americans will default on their mortgages due to a grim job market and stagnant wages. This will most likely lead to an incease in distressed home inventory. Now when I say it’s the right time to buy, I say it under certain conditions in that it’s the right time to buy if you can actually afford to purchase a property. Let’s not forget the Real Estate bubble was created because buyers received loans on properties they just could not afford. This hysteria could certainly happen again since nothing has been done to fix what caused the original crisis. If you’re buying a home, you want to purchase a home in cash if all possible. Home prices have dropped low enough where purchasing a home in cash is doable. If you are going to use financing, use a fixed rate loan and leave a large enough down payment where you can pay off the loan in a few years. To get stuck with a 15 or 30 year mortgage in this market environment will leave you in bad financial position, especially if you have to sell your home in a few years. It’s important to keep in mind that there are risks when purchasing a home. This market has been brutal to both buyers and sellers. However I also believe that even in dire times there is always opportunity. If you are not careful though, this opporunity can come with a heavy price.
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According to the Miami Herald, coastal properties in South Florida have been somewhat stable. The property sector that has maintained stability has been non-distressed properties. Distressed properties however have continued to play a significant factor in the decline in property values, especially in South Florida. The coastal properties that were least affected were high end neighborhoods such as Miami Beach, Biscayne Bay, Coconut Grove, and others. Coastal properties naturally will maintain their value in a stagnant or declining Real Estate market. Luxury homes prices did not decline as sharply as homes in lower price ranges or in less affluent neighborhoods. Buyers are gravitating towards regular listings because they are less complicated or messy then a short sale. Short sales can normally take three to six months to close. Buyers are preferring foreclosures over short sales since foreclosures can take only thirty to forty five days to close. But buyers have become wary of banks and how they are playing the Real Estate market due to the robo signing fiasco from last year. Luxury homes are becoming one of the few segments of the Real Estate market that have maintained stability since the market collapse of a few years ago. Some of the factors that can get in its way are an influx distressed properties and another shock to the U.S. economy.
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The U.S. economy continues to struggle as the value of the dollar falls and the national debt soars. Many Americans are debating if a home is still a good investment in the aftermath of the Real Estate market bubble. This really all depends on several variables. For one is the location of the home you would like to purchase. If your in an area that has a large amount of distressed properties, then you may want to re-think getting locked into a 30 year mortgage. Also, it depends on how you purchase the property. Cash is king. The more cash the better. The more you leverage yourself the less appealing of an investment your home has become. If you don’t have enough cash. It’s better to rent and save then get yourself into too much debt. With inflation a growing problem in the U.S, things that have real value are going to be the investment of choice for many Americans. I believe a homes value is not necessarily just it’s market value. It’s the joy and use you get out of the home that matters. Homeowners only focus on what they can get for their home in the open market. It’s this obession that has caused homeowners to spend an substantial amount of money on upgrades that won’t increase the price of the home to compensate for all the renovations they spent on the property. The property at this point becomes an liability rather then a asset. If you are going to upgrade the property. Do it for yourself, not for the purpose of trying to sell the home. You’ll save more money in the long run. As I’ve mentioned before, I believe a homes use is the real value on the property. If you measure your homes worth by that value, then you’ll get more use out of your home and enjoy it for years to come.
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Home values in many parts of the country have been savaged by the credit bust of 2008. In some parts of the country home prices dropped more then 30%. Foreclosures and vacant properties are still a factor in reduced home prices. Luxury homes however are a different story. A recent article in Financial Planning shows that luxury homes actually increased in 2010. The article indicated that 40% of the worlds exclusive property markets increased in value in 2010. Asian markets were some of the top gainers. I’ve emphasized in previous blogs that Florida is becoming extremely attractive to high income earners. With lower taxes and a beautiful climate. It’s a no brain-er if you’re someone who is in a high tax bracket. Wealthy foreigners are also flocking to Florida because they want to take advantage of low home prices. So as far as luxury home are concerned, it’s very likely that luxury home prices will stabilize or rise in value as that niche market thrives due to the growing number of millionaires and a rising middle class found in the states and in emerging markets around the world. Florida could be the next playground for the rich if it isn’t already.
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According to CNN money report, luxury homes sales increased in all 20 major metropolitan areas last year. Some areas saw an 18% increase in luxury homes sales. So luxury homes are still a prominent part of the real estate market. The reason luxury homes are still in demand is due to several factors. One is high end or upper class segments of the population haven’t been affected as much by the financial crisis as those in lower income brackets. Luxury homes are also a niche market that makes up a small percentage of transactions. This doesn’t mean that luxury homes have remained unharmed by the Real Estate bubble. Luxury homes still have lost some value as we continue to progress through what is deemed, ” the great recession.” But in the grand scheme of things, luxury homes present a great opportunity for buyers and sellers since it will be easier to sell or find a home in a market that has remained somewhat consistent in this market environment.
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