Your local real estate market dictates what your home will sell for.
How much you purchased it for, how much you spent on remodels, or even how much you still owe on your mortgage, all have nothing to do with it. The cards now lie with the buyers in this market, and what they are willing to pay. The buyers have the advantage, and have set a price threshold. Sellers are having to lower their asking price, in order to accommodate that threshold.
Herein lies the problem. A lot of people owe more on their home than what it will sell for today; these people are underwater. They just can't take a hit at the closing table of thousands of dollars, in order to sell their home. I mean, who really can?
In my opinion, herein lies the solution. The new federal FHA refi program will allow people who are underwater on their mortgage to have the principal balance lowered. The lender will essentially "write off" a percentage of the balance, and homeowners will get a new FHA insured loan. Sellers will owe less on their home, and will be able to sell it for less. Ingenious!
You can refer to the post below this for more info on the FHA refi program.
Number 1) I emphasize the word local.
We have all heard it the saying LOCATION, LOCATION, LOCATION! This is usually in reference to proximity to shopping, work, scenic attractions, etc. I, however, am referring to the fact that your locality is completely different from the nation as a whole.
"Regardless of national forecasts, it’s what happens locally that matters to you and your real estate. It’s at street level, that the value of one property is established over its neighbors. The local economic impact on income and cost of living are felt directly in your pocket." Source: Realty Times
Number 2) Yes, I did say your home will sell.
Every home is sell-able, at a certain price. That is really what it all boils down to in the end. The price can change a buyers perspective completely. The price point threshold is all relative. It's relative to the area, the type of home, the time period, and the amount of buyers & sellers in the market. More buyers = more demand, therefore higher prices. More sellers = more supply, therefore lower prices. Currently, we have more sellers than buyers, that is why they call it a buyer's market.
We have a fundamental problem in that sellers can't lower their asking price; they owe more on their home, than what it's worth. So, sellers are basing their asking price on what they owe, not on what the market is dictating. I don't blame them, having to pay to sell your home is a stomach churning idea.
The new government refi program allows homeowners to "write down" their principal balance, so it's closer to what their home is worth. The price at which a home will sell, which is interchangeable with what that home is worth.
Look at this graph below of Christiansburg, from June '09 until August '10. The green line is the avg price of homes for sale, and the red is the avg price of homes that sold.
It is interesting to see this because it shows homes are being sold, and what buyers are willing to pay is averaging about $170,000. The avg price people are selling their homes at is $220,000. That is a $50,000 gap that needs to be filled in.
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Christiansburg, VA June '09 - Aug '10 Source: NRV mls trendgraphix |
I am sorry I have rambled on about boring econ, but I think this new program deserves more praise and attention. I really feel it is going to help our economy.
So, my prediction is if this program works the way it should, it will be very beneficial to a lot of people, and to our economy. People will be able to sell their home, they will be able to relocate for jobs, more homes will be in buyers' price ranges, demand will increase, and their will be a "butterfly effect" felt throughout the economy.
1 comments:
That is great post. It's very nice. Thanks for sharing your ideas.
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