Why to Not Buy Real Estate Right Now

By DOUGLAS G. FRANK, Staff Writer

Let’s face it. EVERYONE is saying “Now is the time to buy.” You know why they are saying that, don’t you? Well, It’s because they are trying to put food on their tables, of course.

Okay, here’s the sales pitch. Interest rates are rock bottom. No kidding. Right now you can finance a house for a lower rate than your parents and grandparents had. Prices are DOWN. You can actually buy a house in some areas for the same prices that your parents paid. That would lead you to believe that you have some serious equity in your future, right?

Now, allow me to burst your bubble. I have some serious reservations about the market right now that I need to get off my chest. This is inside information that is keeping me in my little rental for the next 6 years. This information needs to be available to you now so that you can make an informed decision when the time is right, and to avoid you being pressured by those pushy asshole real estate agents that really want your money.

Full disclosure time: I myself am a real estate agent. I rely on the sale and purchases of homes to feed my family, make my car payment, pay for my son’s tuition, and to keep a roof over our heads. If you came to me and said you wanted to buy a house today, I would take you by the hand and show you every perfect property on the map. It is not my job to give you advice, only to represent you the best possible way through any of your real estate transactions.

However, as a communicator of words, I am bound by a different covenant. I am here to give my opinion on facts within my field, and to give advice as I see it. Because of this conflict, I write under a pseudonym. Kind of like Superman and Clark Kent. By the end of this article you can decide for yourself which is which.

Quick second disclosure: I am not a lawyer, a mortgage broker, or an economist, nor do I claim to be an expert, but occasionally I will express my opinions in these areas. It is important to understand that these are opinions of the writer, and do not necessarily represent the views of the agency I work for nor any agencies and departments that I am a member of.

Now that all of that is out of the way, here are 3 THINGS that really freak me out about the current housing market.

  1. EVERYONE is upside down. Seriously, that is scary. The only people who aren’t are the grandmas and grandpas who DIDN’T sell or refinance when their grandkids told them they were sitting on a goldmine in 2006. That means there are millions of people out there who continue to pay for a risk they did not sign up for. It’s true, read your contract. Real Property is the only kind of property in America (at least in most states) where possession is granted before the lien is paid off. That means the property is yours to do with as you please, expand it, farm it, whatever.

Let me discuss foreclosure a little bit. Foreclosure is an agreement that if you do not pay, the mortgager can take it back. The penalty is a pretty bad red mark on your credit, but credit can be repaired. Banks don’t want you to look at it this way because they don’t want your house. They want your payments. But don’t worry about the banks, they have insurance on your loan, which means they will get every penny back that they lose. Sure you might lose the family home, but then again who wants to live in a family home that cost $400,000 when it’s only worth $89,000? Sure you have pride, but you look like a sap.

Speaking of foreclosures, have you noticed how many abandoned homes there are out there? Perhaps there is a home in your neighborhood that has been vacant for almost 3 years, and you keep wondering when the bank is going to sell it. Or perhaps you have a neighbor who brags he hasn’t pain a dime on his mortgage for 2 years and they haven’t kicked him out yet. That brings me to my next point.

  1. Where have all the FORECLOSURES gone? It has long been a murmur around the real estate world that these banks are sitting on foreclosed homes. Why? Allow me to posit a few theories.

Manpower. The banks are struggling as it is and just don’t have the resources to process the sheer amazing volume of foreclosed homes. It is true that the banks are extremely short-handed, and it may be that they are just trying to get to them. But there is really no rhyme-or-reason to the order of these foreclosures entering the market. It seems like some homes, and even some neighborhoods, are being intentionally neglected.

Another theory is that the banks may be waiting for an upswing in prices before they start putting homes on the market. It stands to reason that the banks would also like to make the most on their properties. Perhaps sitting on certain homes for a few years would be cheaper than putting it on the market now. But banks don’t usually think like that. Like I said, they already got the money back from the insurance. Sure, not all loans are insured, but banks are always quick to write off their losses.

That brings me to the last theory, which seems the most likely to me. It involves the banks controlling the market by controlling inventory levels. Simple supply and demand: The banks are waiting for demand to increase by artificially inflating the demand on homes by employing us agents to do what we do, what we have to do to survive, sell houses. With us out there talking about diminishing inventory levels and the odds of selling fast going up, the banks are watching that consumer confidence needle slowly rise and trickle foreclosures little by little into the economy. The horrifying thing is that people will eventually notice this, and they will be forced to stop, leading to thousands of homes entering the marketplace. A sudden increase in supply means a sudden drop in prices. Kiss goodbye that quick equity you were promised. Speaking of inventory…

  1. The new homebuilders are STILL BUILDING. This is the one that infuriates me the most. Nothing screams corporate greed louder than the homebuilding industry. After single-handedly destroying the economy 5 years ago, they shamelessly downsize and keep doing what they’re doing. Okay, you can keep building on the outskirts of town, but what’s going to happen to the massive inventory of homes in the city? That’s right, parking lots.

I guess it is inevitable. Some homes aren’t meant to live older than 50 years. But many beautiful homes are. Brick and mortar homes that can last a very long times will be torn down by these corporations and acres of old neighborhoods will be bulldozed and replaced by cheaply-built matchbook homes. Think I’m paranoid? It is already happening in some cities.

And here’s the crux of it all. Who is buying a large percentage of the homes right now? Investors. These entrepreneurs are seizing an opportunity to cash in on their assets and expand their leasing inventories. Many families are being forced to rent thanks to their credit being shot. And many baby-boomers are kissing their nest eggs goodbye. This is a very sad time.

Well, that’s all my doom and gloom for now. Do me a favor, please, please read everything you can about today’s market. Don’t just take your real estate agent’s word for it. I wish you good luck.

And that’s my giving a damn.

###

Douglas is a concerned citizen, and practices real estate in the Southwestern region of the United States.

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