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Home values spiraling out of control has resulted in at least one calculated outcome: Home prices aren't what they used to be. The ratio of home prices to annual income has fallen to its lowest levels in decades. If you have cash, this is as good as it gets, if you can get a loan, the rates are great but underwriting is painful. Even those with good credit and large down payments, are sometimes turned down for mortgage loans because of rigid program underwriting guidelines. The rise in cash purchases is the result of the calculated risk lenders are willing to give many buyers today.
More money down
Some economists say, the harder a housing market has been hit, the higher the percentage of cash deals. The rise in real-estate deals made with cash could be a sign of the revival of the U.S. economy in progress. Real estate has been slower to rebound back than stocks, but big bargains are luring in new buyers. Cash buyers are snapping up homes in cash sales, gambling that home prices are near bottom. According to the National Association of Realtors, 28% of sales were cash transactions last year. Cash sales represented more than half the transactions in the Miami-Fort Lauderdale area last year, and 42% in the Phoenix metro. Many single-family homes in states such as Florida, Texas and Nevada can be purchased for less than the new construction cost. Many people will keep paying cash for homes as long as lender guidelines remain strict, prices remain at low levels and availability of bank-owned homes is plentiful. While some people are being lured by bargain prices, they're not going to lead the way to recovery in the housing industry.
Higher housing cost
Large amounts of housing inventory in markets such as Las Vegas, Phoenix, Miami and throughout Florida is being sold by lenders. There is a continued trend of investors buying houses in nice areas and restoring them for lease or resale. There are some very active areas because a home can be purchased for less than the construction cost. Mortgage rates are going up along with the price of other commodities associated with new homes. Rising lumber and steel costs, higher fuel prices and overseas demand all point towards higher new home prices. Could this be the entry point for new home construction before builders have to raise the price of new home construction due to rising commodity prices and inflation?
Foreclosure galore
Although many homes have become affordable, some people bought as the market was rising toward the top and their homes are now worth less than the amount owed on them. Negative equity is one of, if not the, primary drivers of mortgage default, but as banks ramp up REO's, the percentage of underwater loans should go back to previous levels.
While local markets in Florida, California and Arizona that suffered most from the housing collapse continue to post a large amount of foreclosed loans, other less likely states are climbing. Over one third of Chicago Illinois borrowers owe more than their homes are worth, and in Atlanta Georgia over half are underwater. Denver Colorado and Minneapolis Minnesota are also well over the national average. Some analyst blame negative equity for high default rates on loans, as some borrowers choose to walk away.
I missed the party
Buyers holding-off buying because they missed out on the tax credit incentive shouldn't feel bad they couldn't get the benefits, home prices are lower now- no strings attached. When ready, have a lender give rate quotes for what a loan would cost today versus a later date with an increase in interest for future inflation.
Courtesy of: Accent Home Loans |
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