You know the economy is in even bigger danger when the Fed decides to throw the kitchen sink at the problem. The timing seems good considering that it looks like time has been bought for the Detroit automakers, and the stock market has for the time being acted in a more normal pattern by decreasing volatility. In this environment the Fed decided to force interest rates down by becoming aggressive in using funds to buy Treasuries and stocks in Fannie Mae. Friday, rates hit 5.0% fixed with no points, and small improvements in the housing industry have begun to appear. In this atmosphere let's try to predict the future and give some recommendations.
Oklahoma is a Buy
If you are in a stable market like ours, a 1.75% interest rate drop should get you out on the street and looking now. Housing prices for the most part have been holding, and pockets of resistance like above $300,000 in Edmond, Oklahoma have seen significant price reductions. Getting this much interest rate drop is like having a home dramatically reduced in price to sell. If you factor $6 per thousand, a $200,000 purchase could be the equivalent of a $12,000 price reduction. If the property is in a price range that has too much inventory, and it has been on the market for 90 days or more, your timing is just about perfect. Some of you ask, doesn't it make sense to see if the rates drop even further, and my answer is no. If rates get to 4.5% or less, then the number of buyers increase and I may be getting multiple offers which creates an auction mentality that drives the price up. For instance, I have my personal house on the market. It has been active for over 90 days without an offer. it is not overpriced, but because of the previous market condition, buyers weren't buying at any price. Believe me, the first offer that comes in will be the one i work the hardest. In real estate timing is everything, and that time is now.
Selling then buying makes sense
Let's say you have a home that would sell in Edmond for $175,000. and you want to buy at $300,000. The absorption rate on your existing home has typically been under 4 months of inventory. 6 months of supply is considered a neutral market, so you nave a seller's market in your favor, and you have dropping rates that will push your home. That is good news, and low rates get people to buy regardless of time of the year. Then the next step would be to find your $300K home. The even better news is that this price range in Edmond has typically been over 6 months of inventory, and construction of new homes has far exceeded demand. Could you get a $25,000 discount on a home up to $350K? The answer is yes, especially now that bankers are squeezing builders to reduce inventory before more money is loaned to them. New home construction will also give you better energy efficiency for lower utility bills, and modern floor plans are just great. One suggestion is to look for these homes while your home is listed because if you want a discount, it is better to have your home under contract when making the offer, so you need to be ready.
Why not refinance?
Why not? Not everyone is a buyer right now. If you have a 5.75% rate at this time and it is fixed the rates will not be low enough for you since you have to pay points and closing cost. A good rule of thumb is a 2% drop will be sufficient for you to have enough savings to pay cost, or to roll them in to the loan. If you have a variable rate at any price it would be a good time to refinance. You might want to consider an FHA loan when you do. FHA has streamlined the process, eliminated most of the requirements that drove Realtors and clients crazy, and they are qualified assumable unlike conventional. Five years from now if you decide to sell, I would bet the farm that rates will be much highers. If rates were 7.5% at that time, which is still not high, a 5.o% assumable fixed rate will be very attractive. One other thought, as an investor, I am also looking to refinance. I have two properties in Baton Rouge, Louisiana at 6.75% rates. If I can get a 4.75% rate my negative cash flow becomes positive. At a later blog post I will go into how negative cash flow can be a benefit but that is a lengthy explanation. If you want it now, email me at joe@joepryor.com and I will explain.
Conclusion for Oklahoma
Not every market should take this advice. Southern Florida, Arizona, Nevada, and Southern California still has areas of incredibly high inventory, so places like this requires much market analysis of your existing home, contact our team at joe@jeopryor.com for our help.more care and due diligence. it is hard to time a market, and it is hard to time the low point of interest rates. Just remember that missing the low by a fraction of a percent is okay. When rates rise there is historical proof that they go up faster than they drop, so waiting for rates to go to 4.25% may be hard to do. Overall inventory levels in Oklahoma City and the suburbs does have pockets of higher absorption rates even approaching two years, but that is n ot like the overall 10 years in places like Miami Florida. This means that that $25,000 discount is great but not a fire sale. However, in a market holding its price that doscount means something. Many economist and housing experts believe a second wave is coming in 2009 to 20011 to these overheated areas, so a good buy today may not look so good next year. I am not greedy, so $25,000 extra equity sounds really good right now. To be put on an auto email notification of new listings in your area and price range, or to get a free
7% increase in the two averages, so it should have numbers that exceed OKC. For appreciation, it will require that we drill down into specific price ranges and areas, but Edmond as an example showed a 3% appreciation below $200,000. During the month I should have more specific stats for you to help give us a projection for the rest of the year.
