In the last 12-18 months, the average middle class home price (value) in Anoka County has dropped approximately 7%. The press and MLS statistics have reported numbers closer to 4-5% but that does not reflect the growing regularity of seller paid concessions for buyer’s closing costs and repairs at the time of sale.

 

The greater St. Paul / Minneapolis area market is about the same. Homes are selling slower. Average market times are up from about 85 days to 142 days on the market (for the homes that do sell).   Today the average market time for a home that is currently for sale is 126 days.   Right now there is a 7.5 month supply of existing homes on the market in Anoka County, and a 9 month supply of new construction homes that are in the process of construction or completed and standing empty waiting for buyers. Anything over 6 months is considered a buyer’s market.

 

The number of foreclosures has exploded in the past 12 months and will likely continue to increase over the next couple of years. This is a result of declining home values and rising interest rates for buyers that chose Adjustable Rate Mortgages (ARM’s) but are unprepared to make increased payments when rates adjusted upwards.  Foreclosures will continue to increase in coming years because many of these ARM and Option ARM products have a 5 year initial lower fixed rate or lower optional payment features. Many of these features will expire in 2008 or 2009, resulting in unaffordable payments for borrowers. Existing home owners that have refinanced or second mortgaged all the equity out of their homes have compounded the foreclosure problem.   For some of those home owners, a minor financial setback will cause them to miss a mortgage payment or two which will damage their credit and snowball into a foreclosure. They will not be able to sell their home because it is worth less than or equal to what they owe against it.

 

If you are a regular home owner that is not planning on a move at any time soon, it means nothing. The value of your home does not matter until the day you sell it. Real estate has a long history of increasing in value over time. In most years it will go up in value. As long as you can afford the payments, do nothing, and ignore this temporary down turn. If you are struggling with payments, contact us immediately.

 

If you are a homeowner considering a sale, be prepared to present your home in the best possible light and price your property realistically. The competition is stiff out there and buyers are looking for reasons to eliminate your home from their long list of candidates. They want to narrow the choices quickly to a short manageable list of properties. At Greenwell Realty, we are currently paying for professional landscaping consultations, professional home staging consultations, and professional virtual tour photography to assist our clients in preparing their homes to make the best possible impact in the marketplace.

 

If you are a first time home buyer, this is a great time to act! Inventory is up. Prices are down. Sellers are motivated. Interest rates remain low on fixed rate mortgages! This is an unusual combination of events that have come together at one time. In fact, it is the first time I have seen it all come together in my 18 years in this business.  Careful property selection can net you a great property at a good price.

 

If you are selling in order to buy another home, the sale may be difficult, but you will enjoy all the benefits listed above on your purchase.  Again, careful property selection is the key. In special cases it may be to your benefit to retain your current home as rental property, but talk to your agent and tax professional about all the ramifications first.

 

 If you plan to buy new construction right now, you may feel the sting. Although building has slowed, the cost of building materials and labor costs have not dropped. Still like new construction? Your best bet is to be a little flexible on the home’s features and work with your agent to negotiate terms on a new home that is already completed from a hungry builder. But tread carefully here. A bargain in a stalled out development may not be a bargain at all and some builder incentives are trouble in disguise.

 

If you own rental property, I suggest you do not sell just to sell. You may have other reasons to get out, but I expect the tenant quality to increase, vacancies to drop and rents to increase modestly in the coming years. I don’t know if this is the bottom for property values or if there will be cheaper homes next year. Never the less, for long term buy and rent strategies, the future looks good. Remember, unless you are overleveraged it does not matter what the value of the property is until the day you sell. Values generally go up over time and real estate investment has fallen out of favor now.  These are some of the reasons I am seeking purchases for my personal investment portfolio right now.

 

We have an interesting combination of factors that limit the opportunities for the buy-repair-resell strategies right now. With an increase in foreclosures plus more motivated sellers, it is intuitive that there would be low priced, fix and resell candidates right now. However, 3 factors are making this strategy harder. First and most important, longer market times increase holding costs after repairs. This can eat up your profits. I know this first hand!  

 

Secondly, there is a “floor” being created on purchase prices for opportunity homes by under-employed trades people. An unusually high number of trades professionals are finding themselves unemployed as a result of the construction slow down. Many of them are choosing to apply their skills by creating a job. They are buying, rehabbing and selling neglected home.  Although skilled in the trades, many are new and too eager to buy and rehab.  This wave of competition will likely diminish over time but it is very real right now. 

 

Thirdly, when you work out the math, it is apparent that you can pay more for a property that you hold long term and rent than you can for one that you rehab and sell. This is due to the beauty of financial leverage. It is also because of the negative cash flow while repairing and marketing the vacant property. Of course, if you do pay less AND hold long term, that is even better! Buy, rent, and hold long term is the place to be right now.

 

With the current market conditions we at Greenwell Realty have capacity to accept new clients.  If you or anyone you know needs our assistance please contact us.