I admit that I am sort of frozen right now in my REI. Maybe I am too fearful but I don’t see anybody on these boards talking about the credit crunch much and how it will effect their ability to resell the homes they are trying to SS.
Or else, you somehow think these lenders in trouble are going to help us SS investors get more deals approved. Yay for us, right?
This might be true but do we want these deals approved easily? What does that mean when the lenders all the sudden start approving your low offers? Do you really want them anymore? Or is it a sign that our offers are too high?
Does everyone realize the environment your potential buyers are in trying to get a mortgage? In the past few weeks, rates are dramatically different but it doesn’t seem like we have yet made dramatic changes in our valuations of property. How are most people going to buy your flip at the price you expect if their interest rate is 2 points higher?
How can a comp from even 60 days ago be relavant if that buyer was able to obtain a 7% mortgage and today it is 10%+? That comp can’t be relavant can it?
How about the 1 year old comp (come one you know you guys use them that old) where the mortgage could have been 5.5%?
I think that virtually every comp is now irrelevant because the mortgage rate environment is so different.
Maybe I am chicken little who thinks the sky is falling but if we don’t reevaluate the deals we have made offers on already, we may end up with approvals we can’t resell.
I think prices in general have to adjust down big time in one click just like mortgages adjusted up in one click.
Yes, maybe the loss mits will not agree with our new valuations just yet but such is the nature of SS.
The great deals always come at the END of a crises. People who stand in there at the beginning of a crises get run over. Are we at the end or the beginning?
Is there an avalanche of homes coming that we are ignoring?
I agree that the current comps are very “fluid”, meaning the market, at least where I am, is constantly moving/changing in real time. Price moves are dropping at $50K or more at a time (I just recently saw a home on the market for two months drop from $799K to $699K (first reduction). I think you touched on the same thing that I am really concerned about, which is who will be the buyers down the line. I am in the process of lining up financing for when I think I will need it (6 months from now?), and it is a whole new world out there. There are so many products removed from the market right now, especially jumbo loans. I have seen pre-approved buyers have to back out of deals when their mortgage that they had lined up suddenly wasn’t available, not because they no longer qualified for it but because the lender no longer offered that type of loan. I would suggest anyone looking at a SS right now build in continuing price erosion in their calculations. The lenders have overreacted and that will accelerate the housing price reductions as fewer buyers with funding lined up will be picking from a saturated market of available homes. I think eventually it will be a good time to invest, but right now we are still rolling down that hill quickly.
If you are in Florida, California, Phoenix etc… you may want to be real careful flipping houses.
I am in Dallas, TX and have been real cautious with my recent acquisitions. I am estimating having to sell them at 10% less than appraised values when running the numbers.
The purchasers will have more equity day one, the lenders see the purchase price below the appraisal etc…
NOW the wholesalers :argue are still trying to hold to the “high appraisals”, but it won’t be long before reality sets in.
In southern California the appraisers I know have been required by lenders to factor in not only solds but also pending and active listings for at least the last year. Appraisers generally restrict their search to those places with 1/2 a mile of the subject property and that have sold or have been listed within the past six months.
I don’t know about the interest rates you are quoting but I was quoted a rate of 6.375% from two lenders today for 30 year fixed loans.
I have noticed in the San Diego County market that of 95 zip codes, 58 had declining home prices (from 0.54% to over 30%), 12 were mostly unchanged, and the 25 had increased prices (from .50% to over 67%). I suppose it’s a matter of location, location, location.
“I don’t know about the interest rates you are quoting but I was quoted a rate of 6.375% from two lenders today for 30 year fixed loans.”
SUBPRIME …people. I am talking about subprime. Tell the lender you have a 550 FICO and need 95% financing on a no doc loan. See what he quotes you. 6 months ago, no problem. 6 weeks ago, little problem. Now, big problem. It’s been in the news a little.
The gains in this market in recent years have been largely fueled by the availability of subprime mortgages to people who were only able to rent before. These are now virtually GONE. So those extra buyers are virtually gone. You say the gains were fueled not by home buyers but by speculators. OK, speculators with access to cheap SUBPRIME loans which allowed them to buy several properties with not much cash. Again, these are gone.
It only takes a little imbalance in supply demand to tilt the applecart and send prices down.
The changes I am talking about are not shown in the stats yet. It is happening NOW.
I am just trying to open some eyes. Don’t believe me? Hang out on the Mortgage Broker forums or the Apprasier Forums and read what they are saying about what is happening RIGHT NOW. TEHY ARE VERY PESSIMISTIC.
I think our eyes are open here. Have you been reading posts? It’s an exciting time to be an investor. There will be tons of opportunities to purchase properties for less than ever before.
You know all those subprime buyers who are losing their homes and can’t buy anymore? Guess what - they are now renters.
I think banks may rethink how low they will be willing to go with short sales soon. As in they will go lower. They have no interest in taking on more and more properties - especially now. If that means they have to lose a little on the house to balance their real property in the books, they will. Before - they could wait it out.
Comps are relative and reflect what is currently happening in the market. More short sales and foreclosures will create lower and lower comps for other sellers on the market. Better market for buyers.
Eric - Someone with a 550 FICO score probably should not be buying a house at all until they learn how to better control their credit. You are lamenting the possible loss of buyers and I understand that, but is it really fair to the buyer with credit problems or the new lender to have this buyer take on yet another obligation they don’t understand?
LoriK is correct - prices will go even lower as far as I can see. But…they will eventually go up again. If you study the real estate market over a long period of time you will note that it runs in cycles.
I am not lamenting anything and of course people who can’t control their credit or make payments shouldn’t buy a house. I am trying to point point out that this segment of buyer is no longer there. This is the buyer who was the main fuel to the price increases over the past 10 years. Now they are gone, just like that.
The ballgame is different. Yes they will become renters. That is a very simple answer that is ok for some but not for most. SS is attracting the get rich quick flippers. Many are on this board and they aren’t looking to be landlords.
My whole point has been things have dramatically changed in just 4 weeks. Be careful. The numbers haven’t shaken out yet. Some of the deals you have submitted in the past few months that are still pending are NO GOOD. Pull them or reduce them. Don’t wait for 60 more days to get the govt report showing what is happening now and regret the buys you made today.