When will the nation’s property values begin to appreciate again?  This is the $64,000 question that real estate professionals, investors, and  mortgage professionals would like to know. The truth is nobody can accurately  predict the return of the real estate market.  Like  everyone else, I can’t predict the end of this crisis either, but what I can do  is tell you what will have to happen to facilitate that change. The answer is  quite simple: America must reinvest in herself once again. Without an  investment, real estate is as worthless as the Dollar is today.

Think back, or read a history book, about how families in  the ’40s and ’50s used to buy homes. Young couples lived with Mom and Dad during  the “courtship” prior to getting married, until they had saved 20% to put down  on their “dream home”.  They made an  investment in America, (i.e. the American dream). In the years that followed we  have devalued that investment in lieu of credit and the easy access to it.  Property values rose artificially and our nation became addicted to credit.

The value of the  dollar has been demolished due to the same principle. When we place value in assets  based on their ability to be easily bought and sold versus the value that has  been invested in the asset, we devalue its worth. For example, two years ago I  could have bought an $800,000 house (and I assure you that I cannot afford a house that  expensive). The owner of that asset (the $800k house) placed value on his asset  based on the availability of buyers like me who could buy the home. The problem  is, this homeowner probably had less than 5% invested in the home. Where do you  think that homeowner is today?

Had he put 20% down on his home, he would then own a  valuable asset in which he has a real investment. This outlay of cash forces him  to buy and sell his home in the same manner he would move an $800k investment  around in the stock market – very carefully. Thus, the home has REAL value. However,  having bought the home with little or no money down, the asset became disposable  and so follows the real estate market.

So, as I said earlier, I cannot predict when the real estate  market will bounce back, but I can tell you what needs to happen before it  does. America needs to reinvest in herself by getting back to solid buying and  selling principles. This strengthens home values, which encourages investors  who employ builders who employ carpenters, painters, real estate agents, loan  officers and so on. America was built on the “American Dream” which has turned  into the “American Nightmare”; she can only be rebuilt by hard working  Americans, not by Wall Street.

Here comes Spring, historically the time of year when buyers awake from the winter slumber of the holidays and snowfall, and go on their pilgrimage to look for new housing. Houses look better in Spring with green grass, blooming trees, and flowers.

Plus, buyers who find a home in the next 60 days can close after the school year ends and enjoy the summer months in their new backyards. It’s almost a rite of passage; baseball teams go to spring training, buyers go look at homes, and the birds fly back north.

But this Spring is different than those of recent memory…

• Because of the warm weather we experienced here in the Northeast for most of this past winter buyers have been out for months – making offers and buying homes.
• Many sellers have finally come to understand that they need to have a compelling price on their home to attract buyers. The days of listing your home and negotiating down are over because there are homes on the market already priced correctly, and those are the homes that buyers are going to. The overpriced inventory doesn’t even get their chance to negotiate down.
• Rates have ticked up as economic news (like unemployment numbers) has improved. That, coupled with rising mortgage insurance premiums and guarantee fees, seems to have given some sense of urgency to buyers.
• The looming shadow inventory, which most certainly will keep downward pressure on home prices (when added to easier short sale approvals), has tended to encourage home sellers to be more realistic in their expectations.
• The abundance of information available to consumers has further increased their need for sound advice from top-notch real estate and mortgage professionals. The cream is certainly rising to the top in those professions.

Low interest rates, a tremendous selection to choose from, and the seasonality of it all makes for an exciting next 60-90 days. My advice to anyone looking to buy or sell is that waiting to be aggressive could be a fatal mistake if you hope to find the best deal. From my experience, the best deals come when more people are competing for them…and that time is NOW!

We have often advised buyers to look at the COST of purchasing a house more than the PRICE of the home. Obviously, price is part of the cost equation. The other piece, assuming you are not an all cash buyer, is the mortgage rate. The mortgage rate to finance a purchase can have a dramatic impact on the overall cost. Recently, there are more people talking about the possibility that mortgage rates could begin to increase.

HSH.com studies trends in mortgage rates. They explain:

“A better economic climate almost always brings higher rates, and a lessening of the troubles in Europe from massive central bank assistance adds to the movement of money from safe havens to more risky assets, driving rates upward.”

Dan Green of The Daily Market Reports recently stated:

“The Fed sees growth coming faster than originally expected. There’s suddenly less chance that the Federal Reserve will intervene to help keep mortgage rates low. Absent Fed intervention, mortgage rates are apt to rise and Wall Street is now betting that the Fed has bowed out. With no stimulus, mortgage rates rise.”

Lawrence Yun, chief economist for the National Assoc of Realtors, recently wrote:

“Mortgage rates will be starting to rise. From the 3.9 to 4.0 percent average rate in the past five months on a 30-year fixed mortgage, the new rates will soon be in the range of 4.3 to 4.6 percent.”

Yun explains his logic here.

We do not attempt to predict future interest rates. We leave that up to the experts in the field. However, we want our readers to understand the potential impact on the cost of purchasing a home if they do rise. Here is a simple table that shows, even if the PRICE of a home softens, the COST of a home could increase.

Bottom Line

Many purchasers think they should wait until they are sure that prices have hit bottom. Deciding whether or not to wait should be determined by where the COST of a home is headed.