Thursday, March 3, 2011

The Beige Book Is Out - Or What Does Your Lunch Money Have To Do With Your Landlord?

So, the Feds famous (or infamous, depending...) Beige Book is out with current trends on all things economic in the country. The overall consensus appears to be modestly positive. The caveat is that the real estate market is still moping along. Kerry Curry, writing in the Housing Wire e-zine makes the following assessment based on a read of the Beige Book:

"Reports on home prices were mixed. Atlanta and Kansas City observed persistent downward price pressure. Home prices continued to fall according to Philadelphia reports, but mainly at the high-end of the market. Cleveland and Chicago contacts described prices as little changed.

The outlook for residential sales and construction improved marginally, although activity is expected to remain at low levels. Kansas City contacts anticipate a seasonal surge in sales activity this spring. Atlanta, Dallas and San Francisco also expect modest improvement, while little to no sales growth is expected among Philadelphia contacts. A slight uptick is expected in Chicago and San Francisco construction.

Several districts indicated improvements in commercial real estate sales and leasing activity, including Boston, Richmond, Chicago, Kansas City, Dallas and San Francisco. But most reports characterized nonresidential construction as weak."

My friends and clients in the greater Philadelphia region will be interested the comments about our area. I really am not a pessimist about the market (I feel a need to keep reaffirming that) but I am a realist. The real estate market in this area is still experiencing downward pressure. If you want to sell a property you must, absolutely MUST, keep that in mind as you think about your pricing strategy. There are a bajillion (to use my teenagers parlance) properties of every stripe on the market right now, another bajillion that the owners would like to sell but are waiting for a better climate, and still another bajillion that the banks are circling like vultures. 

My opinion - we have another couple of years of depressed real estate prices. Meanwhile, inflation WILL enter from stage left (some will say stage right but the democrats are responsible for most of the stimulus, which will be the catalysis for rising prices) and start to eat away at the average family's budget. My evidence for that - it's happening right now. Oil is going up, gasoline is going up, and there is growing worldwide pressure on agriculture which will result in higher grocery bills for all of us. And rents? They will have to rise as landlords struggle to keep up with the costs of maintaining their properties.

And what about interest rates? They are at the bottom, really. Can they go lower? I remember my grandparents telling me they bought their first house with a 3% loan from their LOCAL bank. The down-payment? A solid 25%. Do you think any bank will go to 3% in this environment? The average first-time home buyer still wants at least 95% loan-to-value. What bank is going to give out 95% loan-to-value at 3% - not going to happen.  So, interest rates my hover where they are for a time, but there is no where else for them to go but up.

In the final analysis, the time to buy real estate is RIGHT NOW. Lock in your rate. Everyone is on the money talk shows saying that you can't think of your house as an investment, it is shelter only. What they need to emphasize is that it is FIXED COST shelter. Your mortgage will not increase along with everything else you have to buy, thus providing stability in the largest piece of your budget pie.  If you continue to rent your housing costs will rise along with everything else, and then you'll have to use your lunch money to pay the landlord. (That's right - my sub-title was a shameless hook to get you to read the whole piece.)

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