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To Buy or Not to Buy?
1799 Views ::
11 Comments ::  :: South Padre Island, Investment, Economy |
To Buy or Not to Buy? With the onslaught of negative news about the national economy, the volatile stock market and the rise in foreclosures, many buyers have been left wondering if the market has truly bottomed out and whether or not now is the right time to purchase a home.
 If you’ve read a newspaper or signed on to CNN.com lately, odds are that you’re not feeling very confident in the economy at the moment. Given the events of the past several months, many people are left wondering about the safety of the stock market and the best place to put their money.
Is real estate the answer, or will prices continue to fall? The answer to that question depends on what type of investor you are. Those looking to invest over the long-term will always find the real estate market to be a safe bet.
In an article about average annual rates of return featured in the Wall Street Journal, Real Estate outperformed the Dow Jones, Bonds, and T-Bills during the period from 1926-1996.
Though recent news has been primarily gloom & doom, many have forgotten that real estate is cyclical and that in the long-term it has shown a consistent increase in value.
Another benefit of the current market is that buyers have selection on their side. Homebuilders are offering significant discounts and great upgrade packages while some eager sellers are accepting much less for their properties – in some cases lowering the original listing price by more than $50,000. Today’s market allows buyers the time to research an area, find the best deals and negotiate a good price.
What about stricter lending requirements? These new standards actually offer more protection to buyers. Zero-down and interest-only mortgages on that multi-million dollar dream home are a thing of the past. But that’s a good thing – you probably couldn’t have paid for it in the long run.
Tighter lending standards are positive because they help to ensure that a borrower can really afford the home. For those with good credit and money to put down, loans are readily available.
Finally, interest rates remain low, providing yet another benefit that the stock market does not offer – leverage.
So in addition to finding great deals in the current market, you can lock in a low rate that makes that dream home more affordable. While now may not be the right time for home-flippers or those looking to cash-in quick, the current market offers an excellent opportunity for those looking to make a secure, long-term investment. |
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Mary Beth Harrison, Dallas @
Thursday, October 09, 2008 9:32 PM |
No one wants to purchase a home only to see its value decline.
But should you wait to buy a home until prices bottom out?
There are articles and opinions for and against timing the real estate market.
Many people who have tried to time the market miss out on the chance to build equity by waiting to buy until prices rise again.
For the past 40 years of recorded history, home values have went up and down in cycles but almost always up overall in time.
Market cycles only become clear in retrospect. In the midst of a market slowdown, it’s very difficult to predict when housing prices hit their low points.
The best way to protect against buying at the wrong time is to Sell at the right time.
If you keep your home at least 5 years, history has shown you will almost always come out ahead.
The longer you own your home, the better chance you have of building wealth and protecting yourself from the market’s ups and downs.
In highly desirable areas, like the coast of Texas, the value of real estate is assured - due to the limited amount of supply and mankind's thousands of years worth of proof for demand.
There will always be the desire to a have a place where the land meets the sea.
And in the last decade, we have learned how to build home products so that they can resist the worst nature can throw at them. |
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Inman News @
Thursday, October 09, 2008 9:37 PM |
Demand for housing now depends on more basic considerations which are actually the old, basic set of fundamentals:
Homeownership offers more control and freedom compared to renting. The government subsidizes homeowners, not tenants. And over the long term, owning a home is a disciplined way to build savings as owners pay off their loans and keep their housing costs predictable, assuming they get fixed-rate mortgages.
Homeownership becomes reasonably affordable because wild swings in value even out as liquidity excess is not pushing too many buyers into the market.
Advantages still favor owning over renting, but the new fundamentals translate into a housing market that is significantly smaller.
It is long-term value, not short-term appreciation, with significantly fewer home sales but a more stable market. |
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Dallas Federal Reserve Bank @
Thursday, October 09, 2008 9:40 PM |
From the Dallas Federal Reserve Bank
The Texas economy continues to expand, but growth is decelerating due to a slowdown in the national economy.
Home prices continue to hold up in Texas. The Office of Federal Housing Enterprise Oversight house price index for second quarter 2008 shows that Texas continues to see home price appreciation, although the rate of increase has moderated.
Texas home prices rose 3.6 percent year-over-year and 0.7 percent in the second quarter. |
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Inman News @
Thursday, October 09, 2008 9:43 PM |
There are three recent real estate laws every home buyer, home seller and homeowner should be aware of:
1. The Economic Stimulus Act of 2008. Why do you care about this one? Because it temporarily increased FHA and conforming loan limits to $729,250 in high-cost-of-living areas -- in some areas, this was an increase of several hundred thousand dollars. This means that if you live in a place such as the San Francisco Bay Area, you ordinarily would have had to pay a couple of percentage points more in interest on a jumbo loan to finance a loan amount of $700,000 on a loan that you can now get for the lower interest rate of a conforming loan. If you are a buyer, this obviously could save you tens or even hundreds of thousands of dollars of interest over the life of your mortgage loan, and may also make it more feasible for you to buy a home in this price range, because the jumbo loan qualification standards are tougher than those for a conforming or FHA loan.
If you are a homeowner not looking to sell your home, though, this law may still be important for you in that it would allow you to refinance up to $729,250 worth of mortgage debt on a higher-interest mortgage or a mortgage with payments and interest that are about to adjust upwards into a 30-year fixed-rate loan amounting to as much as 97 percent of the current value of your home.
This law was passed in March 2008 -- this increase in loan limits will expire at the end of 2008, and be replaced by a permanent loan limit of $625,500. If you are in a high-cost-of-living area and want to buy, sell or refinance on a mortgage loan amount between $625,500 and $729,250, you've got until Dec. 31 to make it happen.
2. The Mortgage Debt Forgiveness Tax Act. In a short sale, a homeowner sells her home for less than she owes, and the mortgage holders agree to forgive some or all of the debt secured by the property. Until 2007, a homeowner who liquidated her home through a short sale was charged income tax on the forgiven debt. Talk about kicking you while you're down -- you're so broke you can't stay in your home; you are so upside down that you have to sell it at a loss; and then you'd have to pay taxes on the loss, too?! I've actually seen sellers choose to allow their home to be foreclosed on rather than incur the tax obligations that used to be incurred as a result of a short sale.
This law temporarily eliminates the income tax obligation on short sale-related mortgage debt that was forgiven by a mortgage lender, making it less burdensome for a seller to get rid of her home through a short sale. For a homeowner who owes more than her home is worth and needs to try to sell it short, this law makes it worth your while to try to avoid foreclosure through a short sale, without fearing any tax penalty. Note -- this act is also temporary, providing an exemption from the income tax on mortgage debt that is forgiven only through the end of 2009.
3. The Housing and Economic Recovery Act of 2008. Passed in early August, this housing bill promises to impact the real estate market in several different ways.
First, it will allow about 400,000 homeowners who owe more than their homes are currently worth to refinance into federally backed loans, and provides incentive for these homeowners' current mortgage lenders to simply erase the loan balance down to 90 percent of the current value of the home. In exchange, those who refinance under this law will agree to give the feds some portion of the future appreciation of their homes.
Second, low- and moderate-income buyers purchasing their first homes will be given an interest-free loan from the federal government toward their purchase up to 10 percent of the value of their homes, or a maximum of $7,500. Again, the hope is that this will stimulate people to buy, increasing demand for homes and, thus, the recovery of the value of homes.
Third, buyers will no longer be able to use seller-assisted down-payment assistance programs like Nehemiah or AmeriDream after Sept. 30, 2008, so that there will be effectively no 100 percent financing available except for buyers participating in certain governmental or nonprofit down-payment grants and programs. |
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Mike Stuart @
Monday, October 13, 2008 10:25 PM |
Our market sales need to get back to the basic fundamental idea - that people buy homes on South Padre Island to improve their lives.
They (and their families) want to have their own place on our sunny skies, blue waters, white sands and tropical climate.
When you have a home on South Padre Island, you fall in love with it.
That is the message someone considering a new home here needs to connect with: not that this is a great time to buy or a bad time; or that the real estate market is good or bad; or that the economy good or bad.
It's never a bad time to fall in love and improve your life. If you can afford a second home - and you like the South Padre Island life - and you find that right home that sparks your interests.
You have found a great way to improve your life and a rare chance to fall in love again. |
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Peter Franks @
Tuesday, October 14, 2008 4:10 PM |
I would LOVE to own a beachfront condo on South Padre. I've been thinking about it for many years. I was looking at some 10 year old vacation pictures, and it looks like much of the beach is now gone, compared to back then. That concerns me, because they're having problems all along the Texas Gulf Coast, and I haven't seen the political willpower anywhere to take the necessary serious corrective action. (Build reefs?) Maybe it's better to rent anyway, since most times you can actually rent for less than what it costs the owner. (That sounds like an overbuilt market, to me.) And no property owner wants to face a hurricane or its aftermath.
Perhaps global warming is contributing to the beach erosion. If so, that problem isn't going away anytime soon, and will probably only get worse. If I buy a beachfront condo now, I still want it to be a beachfront condo 20 years from now when my kids inherit it.
The newer condos in the area really scare me. Just look at the "leaning tower of Padre". Those buyers were taken to the cleaner by the developer. Also, the developer of Sapphire focused too much on amenities, but not enough on hurricane resistance. That place really got messed up by Dolly, and Dolly was not that bad of a hurricane. (That's not to pick on Sapphire too much, and many buildings on the island proved to be completely unsuitable for tropical island weather.)
I sometimes get scared that there is no hospital anywhere near the island, especially for old guys like me. If you have a medical emergency they fly a helicopter in for you to the convention center, and I remember a helicopter going down in the bay about a year ago. Scary.
I was around when the bridge was knocked out a few years ago. That was horrible. Now I think that Port Isabel is resisting the idea of building another bridge because they're afraid it will negatively impact tourism. (It will.) But if you ever were on the island before a hurricane hit, you really would want another bridge on the island.
Sometimes the headaches associated with a 2nd vacation home discourage me. When I look at those constantly corroding door locks and AC units, it's not a problem I want to deal with. No wonder the monthly management fees are so high. With the constantly damp air I hate to imagine what the inside of one of those places would smell like after not having been lived in for a couple months. Maybe people rent their condos to help keep them maintained???
And then you have those "special assessments". Every few years something big needs to be fixed, and the management tells you to write a big check. We need new hurricane resistant windows, new roof, balconies are falling off, retaining wall needs work, etc. No matter what you budget for monthly costs, it never seems to be enough.
I do love this island. The weather is usually great, the water is nice, and the food is good most everywhere. It is the best place in Texas, as far as I'm concerned. But this past year's unfortunate events have me really concerned that island real estate is not a good investment. Property values are sinking, and inventory is rising. I suspect there would be a lot more properties on the market, if owners thought they could sell them for a reasonable price. |
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Hank @
Friday, October 17, 2008 11:49 AM |
Sales down, but average prices are actually UP
According to MLS, 2 bedroom SPI condos:
Aug 2006 32 units sold, avg price $245K
Aug 2007 11 units sold, avg price $253K
Aug 2008 10 units sold, avg price $279K
Well, if you're already an owner and don't have to sell, that's a heck of a lot better return than putting your money in the stock market! (If you don't count ongoing expenses, which probably cost more than any long term price appreciation.)
One possible explanation to explain the steady price increases is that only rich people are buying these days, and the condos they're buying are of higher quality. In other words, lower class people who tend to buy less costly island interior condos are not as active in this specific market.
It seems clear that overall buyer interest is drying up, probably due to the nation's economic downturn and tight credit markets. Inventory of two bedroom condos are at HUGE levels, almost a 3 year supply.
Rental income rarely covers owner expenses (especially when bad weather hits during the prime tourist season, or you get hit with a special assessment); you have to look to property appreciation if you're going to justify a buying decision. Or, you need an emotional argument to buy, which works well if money is less of an issue. And SPI IS a beautiful place for a vacation home!
The most curious thing about real estate on this island is the rental market. In general, rental income doesn't come close to paying owner's expenses. Sometimes I wonder if after people bought condos, their actual usage went down after the novelty wore off, so they later decided to rent them out to supplement their expenses. It's sort of that "no man's land" for owners, the mental area between owning and selling. In other words, the difference on this island between rental income and actual expenses is the result of PURE EMOTION, a love of the island. There is no logic to it. The island has that effect on people.
Eventually the economy will turn around, and prices on the island will again skyrocket to unsustainable levels. Now could be a good time to buy, if you've got the money and plan on holding your property for at least 5 years. Vacation home markets tend to be exaggerated by macro economic factors, and it will probably be a couple years before this island's real estate market begins to show any signs of strength again. (And you can't ignore the possibility that the market will continue to deteriorate in the coming year.) You real estate agents should focus on "selling the dream" to rich people, because there is rarely any logic involved in buying SPI property. Good luck to all! |
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Maria Patterson @
Saturday, November 08, 2008 7:48 AM |
Affordability, as a factor of income, is at about 1998 levels. One of the things plaguing our industry and marketplace for the last five years has been affordability, particularly at the first-home and first trade-up buyer level.
With prices falling off and with interest rates at current levels-and they very likely might drop another 50-75 basis points, given the economy-these are very good times for people to seize the opportunity to buy a home. We have not seen an opportunity like this in five or six years. I think the media has gone out of its way to discourage and scare people on the sidelines. I don’t know if we’ve done as good a job as we can in each market. Given the fall from the peak in each market, this is a great time to be re-evaluating.
As Warren Buffett says, “When others are greedy, I’m fearful; when others are fearful, I’m greedy.” This is a time for people to look in their respective markets and take advantage of the good inventory that’s on the market. |
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Kevin James @
Saturday, November 08, 2008 4:42 PM |
I agree, BUT....
I've been over the math dozens of times, and looked at the concept of property ownership from many angles. You're right, from a historical perspective, property on the island is a bargain right now. I figure I can buy a nice condo now, and probably sell it in about 5 years when the economy recovers for about the same amount I paid for it, INCLUDING all of the condo fees, taxes, utilities, and upkeep that I paid during those same 5 years. No one knows how long the economic recovery will take, but it will probably be a slow and painful recovery, maybe about 5 years. (The only downside to this is that you have to keep shoveling money into the property during the 5 year waiting period, and you don't get it back until you sell.) So, I can easily argue that SPI property is a great deal right now. Really, it doesn't get any better than this.
OR,
I can take my money right now and stick it in the stock market. In 5 years it will probably double, and with stock prices down so low right now, that's no joke. In the meantime, if I want to spend some time on the island, I can just rent. That doesn't cost much, and I can only use the property for a few weeks out of the year anyway. Let the property owners deal with the hurricanes, beach erosion, special assessments, etc.
I still haven't given up on the idea of buying SPI property, because the island is so beautiful. You agents would be best to start twisting the arms of some of these owners that want to sell into offering owner financing with a 5 year balloon. A low interest rate and/or down payment would get me REAL interested. The less my total outlay during the 5 year waiting period, the better the deal looks to me. |
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Garth Breyer @
Tuesday, November 18, 2008 8:50 PM | |
ya, I hear you on the owner finance idea. With 761 SPI area properties currently on the market, owner finance might work... buy now, pay most of it later... but I can't sell like that because I'm underwater with my mortgage |
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Richard P. @
Tuesday, December 16, 2008 10:15 PM |
Wish I had bought SPI property before the market crashed, even with Dolly. I lost half my money in the market, but property values on the island didn't suffer nearly as much - not even close. On the other hand it looks like even if I had property I couldn't sell it right now for a reasonable price. MLS says only 8 properties in the SPI area sold in November, against more than 700 currently for sale. It also looks like a lot of owners that were counting on rental income this year got badly hurt by the hurricane. I was looking at bookings for the holiday seasons, and if something doesn't happen soon, the vast majority of the island will be vacant for the holidays. I wonder if the sucky economy is chasing away tourists?
I would have figured that with more than 700 properties in the area for sale, prices would have been cut by at least 30% by now, but that doesn't seem to be the case. That's really strange - perhaps another reason why some SPI property should be part of everybody's diversified portfolio. Just make sure you get a good property, one that isn't going to suffer major damage the next time the island gets hit by a relatively small hurricane like Dolly. That was disgusting to see how many island properties were damaged so badly. Even if your condo is built of solid concrete you can still lose a cheap roof, and cheap windows can blow out, rendering the whole place uninhabitable for a considerable period of time. |
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