Navigating Today’s Housing Market

Florida experienced strong price appreciation in the early 2000s and with the de-regulated financial markets and easy access to capital, many inexperienced as well nefarious investors gained entry into the marketplace. Mortgage fraud was rampant in the State and these investors alongside many first time buyers pushed values up to record levels across much of the Country. Within the Tampa market, the years from 2003 to 2006 were fiercely competitive for buyers looking to purchase and developments sprang up all across the area looking to feed this demand. As 2006 came along, housing market participants knew something had shifted. Inventory began to build and buyers were backing off their offers. The financial crisis of 2008 was the nail in the coffin for the housing market boom in our area and across the Country. Foreclosure and short sale had now entered the daily language of the Real Estate professional.

It was around this time that my career as a Real Estate Professional was beginning to take off ironically enough. While many seasoned Realtors were exiting the career or filing bankruptcy, I had managed to find a path into the listing of bank owned properties and had begun to excel within the field. Within a few years’ time, I had landed many bank client accounts and was averaging 15-20 closings a month. Over 8 years later, I have sold in excess of 1400 properties and have been a Top 10 Coldwell Banker Realtor for the past two years for homes sold amongst all the offices.

The Real Estate market today is a scary and confusing environment for many participants. Scary in that first time buyers, taught that home ownership is the key to financial stability by the Baby Boomers, are seeing record foreclosures and many of their friends and families lives torn apart by foreclosure. Confusing in that with record low interest rates, many feel they should buy a home just for that reason alone. If values fall further though, the gain they receive from that will be lost on an increased interest rate.

As a leading Real Estate Professional, I am asked many of the same questions everyday such as “How is the market, is now really a good time to buy and how can I get one of my offers accepted on these foreclosed properties?” So let’s take a look at each of these questions in depth from the perspective of a Tampa based Real Estate Professional.

How is the market?

This is probably the #1 question asked of any Real Estate professional and is such a broad question that many of us hate trying to answer it. Real Estate markets have many components and segments and it’s difficult to summarize an answer to this question that effectively encompasses the entire market. Today’s market is a seller’s market, inventory is at record lows in the Tampa area and this is true in many parts of the Country as well. The de-regulation of the financial markets in the 90s led to a housing boom in the first part of the 21st Century and pushed values up in our areas to record highs that peaked in 2006.

The market from 2004 to 2006 could almost be defined as a hyper-market, a rare occurrence in which values were appreciating daily and buyers were becoming accustomed to instant gratification / return on their investments. In 2006, the light switch was turned off and values fell south and inventory stacked up all across Florida and many parts of the Country. The financial crisis of 2008 was the nail in the coffin for the housing market and began the foreclosure crisis that pushed values back down in our area 50% off of their highs from 2006. This decline in values started in 2006 and bottomed out in 2012.

2012 saw the entrance of the large institutional investor, or many times referred to as the hedge fund buyers. Foreclosures along with overall general market fear amongst buyers had forced many people into rental homes and this demand pushed rental rates to record highs in Tampa Bay. This coupled with the record low values made the buy, rent, and hold strategy an attractive investment to these investors. So in 2012, several large funds entered the market almost simultaneously and began to eat away at the excessive inventory. The market quickly shifted to a highly competitive environment where many homes were being offered on by multiple bidders and these investors were keeping out the traditional buyers because of their all cash offers and aggressive offers. While this frustrated many buyers as well as Real Estate professionals, this worked to prop up values in many communities. Roughly speaking, they helped return about 20% of the lost value primarily in newer communities. Their appetite for older homes was weak and homes older than 1990 were not in demand for them and these values are still struggling to recover in some areas.

Three years later we have seen the institutional investors back off tremendously due to the increased value they helped to facilitate and a return of more traditional buyers and offers in our marketplace. Inventory remains at record lows in the area and values are now in a stable to a slight pressure to increase as buyers today are quicker to back off of their offers when met with aggressive counters from sellers or just an unrealistic value point by the seller overall. Many of the purchasers of homes in the early 2000s were taught that Real Estate values always hold their values and oftentimes appreciate only to have the rug pulled out from underneath them when values crashed in 2006. So today’s buyers are much more educated and reserved when making offers. Today’s market is also very cash centric with about 40% of all sales going to all cash buyers.

Is now really a good time to buy?

Values in our area are still at very low values versus what it costs to rent and so home ownership is a great investment at this time, but it is important to remember that Real Estate is not meant to return instant value. You must have at least a 5 year plan to see a return on your investment at this time in the market. Unless you are a Real Estate investor and make aggressive lowball offers or buy, fix and flip, the traditional buyer needs to have a buy and hold strategy and be sure they will be in the area with a stable job for at least 5 years to see a return on their investment. Historically, Real Estate cycles are 17 years on average from peak to peak and which the peak in our area in 2006, we should see a return to peak values around 2023. This is in line with the analysis I heard from the institutional investors, one of which I represented in a number of transactions. Their plan was to buy up homes beginning in 2012 with an expectation to sell beginning in 2020 and all their financial models were based upon this analysis.

Another consideration that buyers need to factor in is the record low interest rates. If a buyer decides to wait to purchase a home thinking values will fall further, they may lose the additional purchasing power through increased interest rate costs as the rate goes up in coming years. With rates in the 3 and 4 ranges, now is the best time there has ever been to buy a home with a mortgage. Historically rates should average around 7 to 8 percent and we saw rates in the teens in the mid-80s. Imagine what our housing downturn would have looked like if we weren’t protected by record low interest rates.

How can I get my offers accepted on foreclosed properties?

Being a top producing foreclosure sales specialist, I hear this question often. Foreclosures are oftentimes priced beneath other homes in the neighborhood and attract attention from multiple buyers and oftentimes receive multiple offers. Most foreclosures are in an inferior condition versus other homes on the market and are usually sold as-is. Some banks will repair and rehab some of the homes and will work with buyers when repair issues come up on appraisals but the market is mostly a cash controlled environment. Bank asset managers like the ease of a cash deal and will quickly gravitate towards those offers even when they result in lower returns over an offer continent upon financing.

Consumers of Real Estate need to understand that when purchasing a property that is contingent upon financing that not only do they need to qualify for a mortgage; the property itself must meet certain condition guidelines depending on the lender and financing type to also qualify for the mortgage. Many foreclosures are not in the condition necessary to pass the condition requirements for lenders and so buyers and their Real Estate representatives need to understand this prior to submitting an offer. If the home needs work and renovations, buyers need to present offers that allow for renovations such as an FHA 203k offer. Given that nearly all foreclosed properties are sold as is, if a buyer’s lender reveals the need for repairs to be done on an a property prior to funding the deal, the deal will fail and buyers are at risk of losing their earnest money deposit.   Be sure to have this discussion with your lender and ask them if a repair requirement comes up, can it be added to the loan overall or could the repair money be held in an escrow account for the repairs to be done after closing.

The biggest and simplest tip I can give to consumers of Real Estate is to enter the market with a full loan approval, not just a pre-qualification letter. A pre-qualification letter is not a loan guarantee and is usually just a general approval letter in which the loan officer looks at your credit report and asks you about your income and expenses. Other than the credit report, nothing is verified in writing and this leads to many loan denials once the consumers submits a full loan package to the creditor because they either forget to include something or embellished their income and expenses some on the interview. By obtaining a full loan approval, your offer is only contingent upon an acceptable appraisal and clear title to the property and is almost just as good as cash now. Be sure you have a Real Estate professional that knows how to sell this to the listing agent and their sellers and you will be in a much better position to get your offers accepted on foreclosed properties as well as other properties in general.

Consumers also need to take advantage of some of the programs and policies that banks have on their foreclosed inventory. Many of the larger financial institutions have First Look periods to aid purchasers who plan to occupy the property as their primary residence and thus restrict investors from making offers during that time. Also low money down programs and closing costs assistance programs are available from some of the banks so consumers need to work with Real Estate professionals that understand these programs and policies.

Real Estate ownership represents the American Dream for many people still to this day. While we are still in the midst of a housing recovery, it is important for all of us to realize that Real Estate is a market that has fluctuations just as any other. Real Estate is a long term investment for most and it, like all other large financial markets, will recover and benefit the majority of those that invest.

Challenges Millennials Face in Today’s Housing Market

Growing up in the mountains of West Virginia, I was taught at a young age that home ownership was the single best investment one could make to ensure future wealth and prosperity. The typical person enters the workforce in their early 20s and worked a 40 year career and while it is no secret that the market fluctuates, over the course of a career the gains on a home bought early on should show substantial appreciation. This is the mindset that many from Generation X and Generation Y (aka the Millennials) were taught, but the market crash of 2008 upset the financial as well as personal lives of many from these generations that had rushed in fervor to buy a home during the housing boom of the early 2000s. Many market participants from these days have watched their homes end up in foreclosure and have vowed never again to pursue home ownership. This coupled with a shift in our society to a need for instant gratification and several varying career paths that tend to move people around along with a housing market that functions differently than they were taught have kept many of today’s younger generations outside of the housing market and are working to prolong the housing recovery.

Today’s housing market is a much different environment than the markets that the Baby Boomers navigated. The primary difference between the generations is in the way the mortgage market functions now. Baby Boomers typically needed to have a 20% down payment to purchase a home and there were not many financial alternatives as opposed to today’s market which has a number of different financial options for borrowers. This 20% investment worked to protect the borrower from price depreciations and also weeded out market participants that were not yet financially prepared for home ownership. As the financial markets were de-regulated in the 90s, it opened up home ownership to people at a much younger age that lacked the financial ability to weather a downturn in the housing market. Today, as the financial markets begin a shift back towards more restrictive lending, Millennials are being weeded out from the housing market as they lack both the financial capital and job stability that were key to home ownership for the Baby Boomer generation.

Millennials are also faced with the problem of aged housing in our urban centers. As our society becomes more and more service driven, many of the higher paying jobs are found inside the urban core of the City. Many urban centers were built up in the earlier parts of the 20th Century and lack many of the features that new home owners have come to expect such as stronger durability, efficient heating and cooling systems and updated interiors. Purchasers of these homes need sufficient reserves to update, repair, or restore many of these homes. Home buyers today barely have the money to make the necessary down payment on a home yet alone have the reserves to work on the home after purchase. Millennials who want newer built homes typically must migrate to the suburbs which puts them at a disadvantage as service based jobs become scarcer the further they move outside an urban center.

One solution to the problem of aged housing in our urban cores has been to build condominium buildings. While this solves the problem of increased housing demand inside an area with a limited supply of space, condominium ownership presents several challenges. One of which is the shared ownership feature which condominium owners have. The fees associated with owning a unit is often several hundred to sometimes over $1000/month depending on building and City and is dependent upon all owners paying. When one or more owners do not pay, oftentimes due to foreclosure on their units, the others must take on the financial responsibility in the form of special assessments.  This uncertainty presents a challenge to a first time buyer living on a budget. Condominium ownership also turns away many of today’s youth that want to start a family. Since condominiums lack land, many feel this environment is not suitable to a child who wants to go outside and experience life outside of the home.

Much of the cheaper housing in our urban centers is still as a result of foreclosure inventory and while many of the banks have policies in place to aid in home ownership such as First Look periods for owner occupant buyers and closing cost / down payment assistance programs, they rarely invest in the home themselves. Banking institutions that do rehab homes almost always focus on newer homes only and leave the older ones as-is for investors. Banking institutions need to repair and rehab their inventory of homes in our urban centers to aid in home ownership for our Millennial buyers. This investment will also benefit the banking institutions as the increased value of the home will help prop up other homes in the area and lead to a return of higher values in the community. Banking institutions also need to understand their responsibility when lending on a condominium building and be ready, willing, and able to pay their share of the dues when the owners go into foreclosure instead of fighting associations to pay little or nothing when they take over ownership and thus results in deteriorated conditions for the building and lower values overall.

Home ownership is a great investment for both the owner and the communities. Historically its appreciation has outpaced the rate of inflation and provides a good nest egg of stability for retirees. Homeowners take pride in ownership and aid in keeping down crime and community blight as well. Home ownership represents the American Dream and Millennial participation along with stronger support from the financial institutions in the housing market is needed in this final stretch of our housing recovery.