What's With the Market? Buy, Sell or Hold?

The newspapers get it half right; prices are falling - but it is the asking price that is falling, not the sales price. In the short-run there are dips or plateaus in sales prices but, over time, real estate sales prices consistently appreciate in value.

With the pressure of high prices combined with pressure on the mortgage rates, the local market started turning in late October to early November 2005 to a market, where inventory begins to build and prices begin to fall. No longer can a seller add 20% to the last home sold and get multiple offers over asking in a short period of time.

Many of the homes in the market in early 2006 were priced in that October-November period based on the previous period's rapid appreciation of up to 28%, the latest annual rate of the very fast-paced market in the last few years. Adjustments to what the market will bear in the first quarter, led to asking price reductions to a more modest 7-10% appreciation on previous sales prices of like properties.

There are also changes in the mortgage market. Through 2005, prices had risen to the point where, even with low interest rates and "cheap" money, many buyers were forced to take so-called "exotic" mortgages, funding their mortgages with 100% adjustable rate loans or interest only loans, on the hope that in the three years following, their income would increase to cover a switch to a conventional mortgage or the appreciation would continue at a rate that they could sell the property in three years at a profit.

The Mortgage Bankers Association, a Washington D.C. based trade group, forecast that interest rates on a 30 year fixed rate mortgage would rise form 6.2% at the end of 2005 to an average of 6.7% by the end of 2007. In any case, historically these rates are still very attractive and far less than the average 8.11 percent in the 1990's and, for some of us, the 12-18% that was the norm in 1980 when I bought my first home!

Currently, according to Andrew Stuber, Senior Vice President of Pacific Access Mortgage, "Due to economic reports that came out [in] the last two days, conventional loans improved to 5.875% at points less than 2.00%. All other loan programs are .125% better as well...." This is for the week of March 18, 2006.

After a healthy inevitable leveling off of the five-year buying frenzy, most local forecasts call for a continued healthy market in 2006, even with modest increases in the mortgage rates. Investors still feel that buying investment properties and second homes will give them a better rate of return than the stock market. The key is in finding the right property for your specific needs.

So, Buy, Sell or Hold?

For the buyer, there is the benefit of more choices of homes and more time to make a careful analysis of the best price to offer given today's market values and the varying costs of a mortgage. Yes, buy - it's a great time to find a well-priced home that with a small investment can appreciate and provide increasing equity as well as a perfect home for your family.

For the seller there is the opportunity to use the equity in their current home to purchase a more appropriate property for their current needs, invest in property as a way to generate income for retirement, or to do both! So yes, sell and get your dollars working for you to build income and equity to meet your family's needs. The key is to properly prepare your home, price it right, and market it effectively.

For recent non-investment purchases, the average time to breakeven on the costs of buying and selling and to take out equity is three to five years, depending on current market conditions. The idea of "flipping" a property in under that time is best left to those with sufficient resources to deal in a slower market. So hold for at least three years and assess the market regularly as to the mortgage rates, current market values of like homes, as well as current rental rates. Sometimes, if the market isn't just right at the time, you might want to consider renting out the property for awhile.

So yes, buy, sell, or hold - but do it with a seasoned professional who stays on top of the market and has the information and market analysis skills to help you make an informed decision toward meeting your financial and homeownership goals.

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