With the ominous economic forecasts and gut-wrenching stories about foreclosures all over the country, it’s hard to know which way the real estate wind blows. We know it’s a bad market for sellers -- but does that make it a good market for buyers? Real estate expert Ken Wade, CEO of Neighbor Works America, says “It depends on who you are and where you live.”
The Basics
If you don’t already know, let’s get clear about what subprime crisis really is. Basically, people on all sides of the real estate game got greedy. Financiers made loans they shouldn’t have to people with bad credit. Buyers -- even people with good credit --took out risky loans, signing on for low “teaser” interest rates that are now escalating. Americans used their mortgages like credit cards, tapping home equity to boost spending power. (Hey, who didn’t need a new flat-screen TV?) Homebuilders slapped up vast subdivisions and condo blocks to take advantage of soaring real estate prices, which were driven, in part, by the demand created by the bad loans.
"Before you start to look for a home, know the kind of market you’re getting into."
Now the wheels have come off. Foreclosures are at an all-time high. According to the Mortgage Bankers Association, more than 5 percent of U.S. home loans are delinquent. For the first time since the Great Depression, the median home price has dropped, and it’s no wonder -- there are an estimated two million homes sitting empty nationwide. The situation means it could be very scary time to be entering the real estate market. Buyers must worry about the possibility that prices will continue to crumble, sucking down their new investments. And sellers? Don’t ask.
But doesn’t mean it’s really a bad time to buy?
Three Things to Know
- As bad as it is, all that pain isn’t equally distributed. The housing-price collapse is at its worst in a handful of states. In places like Michigan and Ohio, high unemployment and declining populations drag prices down. Wade says “Some markets are stable (think New York and San Francisco), others have bottomed out completely, and others haven’t reached bottom just yet.” Before you start to look for a home, know the kind of market you’re getting into.
- It’s now much harder and more expensive to borrow money than it was just a year ago. In December, new mortgage fees kicked in for people with low or marginal credit scores, bumping up the cost of their mortgages by thousands of dollars. If your credit score is below 700 or so, you might want to concentrate on raising it before you get into a mortgage.
- Finally (points if you saw this coming), remember the hackneyed saying about the Chinese character that means both “crisis” and “opportunity.” The rash of foreclosures and sliding values combine to create a buyers’ market. So, this could be a great time to buy -- if you meet two (maybe three) criteria: You have good credit; you’re planning to stay in your home for several years (no flipping; you’re going to ride this sucker out); and if you have money for a decent down payment. This last point may not be mandatory. Even though the EZ-mortgage party is over, you can still find zero-down deals. But money up front reduces your monthly payment. That helps keep your head above water and your house in your name -- which, after all, is the whole point.
-- Zach Dundas
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