Two of my favorite mortgage bloggers wrote some great articles that I want First Time Buyers in our area to check out and weigh their options:
Outsmart the Crowd: Skip the $8000 Tax Credit and Wait to Buy by Janet Guilbault
And the rebuttal:
So you think you outsmarted the crowd because you skipped the $8,000 first time homebuyers tax credit by Jeff Belonger
Who do I feel is right? They both are to a degree.
I feel there is a bit of a sense of urgency because we DON'T know nor can we predict where rates are going to be in December. We also don't know where underwriting guidelines are going to take us (Read Lenn Harley, one of my favorite AR Agents on FHA LOANS IN TROUBLE?) One thing that caused this mess is every time banks see a new foreclosure risk, guidelines for underwriting a mortgage loan get tighter and therefore only special people can get financed, therefore prices fell.
Prices fell so low in Las Vegas that it spurred a FLURRY OF ALL CASH INVESTOR PURCHASE ACTIVITY. In July, cash accounted for 38% of ALL SOLD properties. I pull numbers for my market reports around the 15th of the month and I took a sneek peek for August. That number jumped to 42% of all purchases were CASH. This number has continued to rise on a monthly basis since the Las Vegas Area QUICKLY turned into a SELLER'S MARKET in APRIL.
The REO market is in DIRE NEED of inventory with less than one month inventory for the last several months (6 months is considered stable!) REO Asset Managers would rather pick an ALL CASH offer over an FHA offer (read Lenn Harley's post again if you don't get it) because they have less contingencies and quicker closes than financed offers (and also less appraisal, lender required repair issues that can call for a lower net than that lower cash offer!)
The concession stand (seller paying buyer's closing costs) is CLOSED as far as I am concerned. Close to 70% of buyers are getting $500 or less towards their closing costs. That gets them a choice between a home warranty or an appraisal getting paid.
Appraisals are coming in low. Many sellers are asking for buyers to waive the appraisal contingency and pay for the difference between the contracted price and appraisal price (on top of your normal down payment.)
So Las Vegas Area First Time Buyers who have their eye on that $8000 prize have to ask themselves (with these challenges):
- Are you prepared to fall in love with (in some cases) 20+ homes and write offers on them?
- Are you prepared to pay your closing costs (anywhere between 3-6% of loan price depending on lender)?
- Are you prepared to pay the difference between contract price and appraisal price if your appraisal comes in low? (FHA down payment is 3.5% of contracted purchase price.)
Homes must be contracted prior to November 1 and close by December 1. With no inventory in the REO market you may have to go to the short sale market (with a dismal AND LONG close history ) or pray for a new construction fallout (but those prices just ain't as attractive!)
Now my crystal ball has been broken for quite sometime:
Where will prices go? I don't know but they are stabilizing and going up currently (note: I said currently)
Where will rates go? I don't know
Where will inventory go? I don't know but the moratorium inventory has been entering the market since May and 13-14% of trustee's sales (the foreclosure sale) is going to private parties. This is up from 1-2% last year.
Where will underwriting guidelines go? I don't know but I certainly haven't seen them get "looser" in the last three years. They have only got more ridiculous and tight. And just when you don't think it can get any crazier, believe me it does.
You may actually end up paying more out of pocket (for extra down payment and closing costs) JUST in the name of winning the $8000 prize. Economic conditions, willing, of course!
Weigh all of your options, do not participate in irrational buying activity, which got us into this position in the first place. Read Comment #75 on Jeff's Post.
