Yea! Home Prices Hitting Bottom. Now, the Bad News.
By BRETT ARENDS
This is a great time to buy a home in many parts of the country. There are signs that the downward price spiral is bottoming out. Mortgage rates are at historic lows.
The next few years could well be remembered as the best opportunity for Americans to buy homes since the postwar baby boom.
But one group’s opportunity is another group’s problem. Tens of millions of baby boomers and other home owners have seen their equity shrunken or wiped out completely. Many were counting on their homes to help finance their retirements. Often they have been waiting for years for the market to turn. Now they find themselves on the short end of the deal, sellers into the buyer’s market of the century.
“It’s a really challenging environment to be a seller,” says Lawrence Glazer, wealth adviser at Mayflower Advisors in Boston. “Unfortunately, many people planning to retire may have no choice.”
So what if you are on the wrong side of the trade? As ever, there isn’t a single, simple answer, but if you’re in this situation, here’s a checklist to help you out.
1. Don’t hold your breath.
Yes, house prices nationwide have stabilized. Of the 20 cities tracked by the Standard & Poor’s/Case-Shiller Home Price index, 16 are in the black for this year. But the housing market isn’t like the stock market. Bouncebacks are typically slow.
The last crash took more than a decade to work through—and this market could take an especially long time because the huge accumulation of empty, foreclosed houses will hold down prices for all properties.
When adjusted for inflation, the Case-Shiller index didn’t return to its 1989 peak until 2000. Some markets, such as New York and Los Angeles, didn’t hit new highs until 2002. This time may be even worse because the bubble was much, much bigger. Some locations may not recover their inflation-adjusted peak in our lifetimes.
Harvard’s Joint Center for Housing Studies calculates that there is a backlog of around two million home loans in foreclosure, waiting to come onto the market. Some estimates put the number much higher, especially when you include “shadow inventory” held back by banks.
Unless you are willing to wait for a long time, you may not want to get too hung up waiting for a big rebound.
2. Look at your local market.
As the housing market recovers, expect to welcome back the old Realtor’s adage: Location, location, location.
Don’t expect all markets to rise at the same rate. According to Case-Shiller, Phoenix home prices are up 9% in a year. Meanwhile, Atlanta is down 17% and New York is down 4%.
Where will prices go from here? That’s likely to depend on two factors: rents and valuations. If it’s cheaper to own than to rent, and rents in your neighborhood are rising, you can expect prices to rise in due course. If it’s cheaper to rent, or if rents are stagnant, it’s another matter.
3. Be realistic.
The true value of your home isn’t what you paid or refinanced for in 2006, but what it’s worth now. And the true value of your equity isn’t what you put into the home, it’s what you would get if you sold it.
Money spent on that new kitchen? Irrelevant. The pool? Ditto. Too many investors get hung up on past or “sunk” costs. Don’t hang around until you “get your money back.” That money is gone.
4. Know your ‘negative equity.’
Harvard’s Joint Center estimates that 11 million American home owners are underwater on their mortgages—in other words, the loan is worth more than the home. Housing-data company Zillow puts the figure closer to 16 million—nearly one mortgage in three.
The Richardson Group has been selling Hilton Head realestate and Bluffton Real Estate since 1956. Currently, our agents share 150 years of local residency, along with a deep commitment to the people and places that make the area unique. We have two different locations, one in Hilton Head and the other in Bluffton. We specialize in helping you find homes for sale inHilton Head.