7 Things Every Home Buyer Should Know – Part 1

by Tom Vanderwell

Mortgage Officer

Author website

Here’s what I wrote about item #1 on the list last time:

6 months ago is ancient history. What your neighbor sold his house for 6 months ago doesn’t matter.   What the seller was asking for the house 6 months ago doesn’t matter.   What matters is what the market will support today.

So, how are things the same and how are they different?   A couple of things that need to be discussed:

How are things the same?

• What happened 6 months ago is still ancient history.   Since I wrote the first piece, Fannie, Freddie and FHA have tightened up their appraisal guidelines and they will no longer allow an appraiser to use a sale that is more than 90 days old unless they have no other comparables and can write a 5 page essay of why they need to use that one.
• I can’t tell you how many times over the last 12 months, I’ve heard people say, “3 years ago, the seller bought the house for $100,000 more than what I’m paying the bank for it.   I’m getting an awesome deal!”    My first response is, “Maybe.”   Maybe you are getting a deal.   But maybe the seller bought it at the peak of a bubble in the market and paid way too much and now things are just adjusting down to the market.    Maybe it’s not down to what the market will really absorb for the house and if you tried to sell it next year, you’d end up selling it for less than you paid for it.
• “They just dropped the price by $50,000!”   This is a great deal!    Maybe, but then again, I can put my house on the market for $650,000 and then offer to give you $100,000 off the asking price.   Is that a good deal for my house?  (Hint – my house is still WAY overpriced at $550,000 – but I’ll sell it to you for that.)

So what is different?   A couple of things are a bit different from last year:

• The First Time Home Buyer Tax Credit/Buyer Frenzy – If you are any where near the radio/newspaper/any mortgage lender or Realtor, you’re probably getting sick of hearing about the $8,000 first time buyer tax credit.   I’ve written about it before and I’m not going to discuss it here other than to discuss it’s impact on property values.  
• As the number of first time buyers has skyrocketed in virtually all areas (got to get that free money), it has stablized and in some areas has turned around the property values in the lower end of housing prices in many areas.  
• So that can actually show prices now being higher than what they were 6 months ago (for certain segments of the market – but certainly not all of them).  Does that mean that the market has turned around?   Do you rush to buy now because houses are going to be more expensive next year?
• Or is real estate going to follow the same route that automobiles did with the “Cash for Clunkers” program?   You know, the one where sales spiked during the first few weeks of the plan, then slowed down and after the program was over, they dropped quite dramatically?   If that happens to real estate, then how does that play into the plans of  first time home buyer?    If they can’t make it to the November 30 deadline (and time is almost up), do they buy now any way thinking prices are going up or wait because prices are going to come down?

In summary, 6 months ago is ancient history in real estate even today.   However the government’s initiatives that have been attempting to prop up the housing market and encourage first time home buyers have made the calculations and prognostications of what is and what might happen with housing prices much more challenging.

Next we’re going to look at the question of whether what you paid for your house matters or not and the negative equity situation.

Thanks for reading, if I can help shoot me an e-mail at tvanderwell@straighttalkaboutmortgages.com.

Tom Vanderwell

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