Difficult Buyer's Market

Cash Investors are Grabbing up
Bargain Priced Homes

Mortgage rates are drastically low -- at last report, less than 4.4% for a fixed 30-year mortgage. Somehow you would think that home buyers are cleaning out the inventory in short order, but large numbers of buyers are finding it hard to actually close a sale.

I have come up with a list five problems why prospective purchasers are finding it extremely hard in reality to find and close escrow on a home, even in today's "buyer" market:

1. Distressed properties cause buyer stress.

Short sales and foreclosures (technically foreclosures listed in the MLS, mostly bank-owned properties) make up about a third of the properties that are for sale at any given time (in Stockton, more like 85-90%), which sounds like the land of opportunity for home buyers to get themselves into a home at a cut-rate price. But, the better-priced foreclosures which are in the best of repair tend to get gobbled up by investors with cash (see #3), and the typical first-time home buyers are left to scrap over the spoils, in terms of both condition and location.

There has been recent attempts by a few banks to simplify the process, but short sales on average are still taking as long as 6 months to close -- if in fact they do close at all. After the National Association of Realtors projected that up to 180,000 home buyers were notable to close within a 90 day period in the early part of 2010, Congress even voted to give buyers an additional 90 days to close a sale without losing their tax credit for home buyers.

2. You've gotta' have a dog to put into the race.

It's a widespread old wives tale that you gotta' put at least 20% down to get a mortgage loan these days; more and more, opportunistic home buyers are benefitting from 3.5% down on FHA insured loans. But 3.5% down on the sales price for an average American home which (hovers around $232,200), still amounts to $8,127 out of your pocket -- And if you're located in a far Western state, raise down payment up to $9,625 (3.5% of the average home sale price of $275,000) in the Western U.S.

And haven't even begun to consider the buyer's closing costs! in some areas closing costs on FHA loans can cost as much as 5% or 6% - and if you can even get the seller to chip in 3% of your closing, you might easily still be required anti up an additional $6,000 to $7,000 out of your pocket to close the sale, and that's in above your down payment. A great number of the down payment and closing cost and assistance programs that existed at the start of the housing crisis are long eliminated or are no longer allowed.

3. Cash investors are grabbing up bargain priced homes.

With all time-low priced homes and an uninspiring stock market without providing good deal of trust for cash-plentiful investors, many are taking a hard look at the bargain-priced properties on the realty market trying to find ways to grow or recover their portfolio funds. In the early part of last year, FHA even discontinued their 90-day flipping exclusion, allowing investors that buy and flip bargain-priced properties to resell them to buyers using FHA financing as early as the next day after the real estate investor buys them. Thus eliminating a major drawback to flipping homes, and encouraging cash investors to jump back in the flipping game.

So, how does this create more difficulty for "normal" buyers obtaining mortgage financing to get into escrow on their sales? Cash Investors , many times can mandate a huge discount on price and even eliminate higher offers from loan-financed home buyers because an all cash sale and has the potential for a fast closing and lacks all the red tape that so often goof up sales based upon financing, fall the way from appraisal and inspection matters, to HOA and FHA song and dance (see #5, below).

4. You're not going to pick up a property for $10.

Buyers that are unrealistic have the least chance to be successful buying a home in the real estate market of today. Asset managers in the mortgage industry must follow some pretty strict guidelines about accepting low prices and usually are only allowed to consent to only a moderate reduction from the current market value of a bank-owned property. Short sales are intended to provide that the bank obtains as near as possible to the market value, also, as the bank is essentially going in the hole on those sales. And even private sellers on "traditional" equity sales are often times selling for a smaller amount than planned, a great number getting just adequately enough money to pay off their loans.

5. HOA and FHA song and dance.

It's next to impossible to get a real estate lender to make a loan for a condo purchase in a Home Owners' Associations (HOAs) where a high ratio of unit owners have defaulted on their monthly HOA dues (in excess of 15%), or a high ratio of tenant-occupancy (less than 25%t). Unfortunately, when there becomes a large amount of repos or short sales in a condo complex, these ratios both begin moving on the wrong course, and individual units become extremely difficult to purchase unless you have plenty of cash. Likewise, It can be difficult to close escrow on FHA insured loans with homes that encompass condition issues, or on condos not situated in FHA-approved developments. There are ways to solve these problems, but many times don't always work! New Article

Article by Gene Wright, Wright Realtors

Buying Real Estate