With home sales slowing
down and condo prices slipping sellers all across the
country seem unable to get their asking price.
Christopher Mayer, a Columbia University economics
professor said recently "If you're expecting a
short-term gain, you should be looking elsewhere,"
he had argued for many years that land shortages and
rising populations would translate into ever-rising
prices in the "superstar" cities like New York
and San Francisco and LA.
With many of the real estate bulls now waving the
caution flag we have clearly reached the time for a
re-think on this subject. Before we start going down the
"Doom and Gloom" road it should be understood
that owning your own home is still the corner stone of
the "American Dream" and it will always be
that way.
What does it take to fuel that dream, home prices are
normally driven by 3 things. The first is low interest
rates, the second is the willingness of home buyers to
pay for their idea of the American Dream and lastly the
ability to attract 1st time buyers to the market.
Let us take a look at Los Angeles as a market place
for home buyers, the average home sells for 10 times the
average salary. Whatever way you look at it this is
unsustainable, no matter how creative the banks and
lenders become with their new programs. As it becomes
more difficult for the 1st time buyer to enter the
market it starts to affect "Move Up" market.
The 1st time buyer will normally start with a one or
small two bedroom house or condo with the hope that
price rises will allow then to "Move Up" to a
bigger 3 bedroom home in a better area within a short
period of time, say one to two years. Slower price rises
or higher interest rates will put the loan repayments on
a new larger home out of the reach of the buyer and this
leads to the whole market getting weaker.
The Europeans have an interesting system in place,
credit scores have no bearing on the way they calculate
your ability to repay the loan. Under the banking and
home loan laws you most provide proof of income, once
this is done they will offer you the chance to finance
up to 4 times your income. Most programs will finance up
to 90% of the loan to value of the property this system
seems to ensure a steady supply of 1st time buyers along
with regular increases in house prices with affordable
loans.
LA and New York are the so called "Super
Star" markets and not really reflective of the
whole county, so your strategy will largely depend on
where you live. Local markets are affected by many
forces like jobs, the new house market and inflation to
name but a few. Homeowners who hold on to their homes
for a number of years and pay down their debt do far
better than those who refinance every two years taking
out the equity they have built up, this really is the Number
One Cardinal Sin for homeowners.
The TV and newspapers are jam packed with advertising
that is trying to convince you to refinance, generally
the only people making any money out of this is the
Broker or Loan Officer.
Have an opinion or a question you would like me to
answer, then write me!
http://www.CarlHampton.com
"Your"
Money Matters By Carl Hampton
Author of "From
Credit Despair To Credit Millionaire"
