Buyers Face Tough Real Estate Competition
While home sales are showing gains and prices are rising, the inventory of foreclosed properties is getting smaller, attracting homebuyers and real estate investors alike, says Joe Villaescusa, CEO and President of Century 21 Allstars in Pico, Rivera, Calif. In addition, some areas are seeing an increase in the supply of houses for sale.
The S&P/Case Schiller Home Price Index showed in August that the National Index increased 10.1 percent over the past four quarters and that Los Angeles and San Francisco have posted gains in home sales for the past 15 months, as have Las Vegas and Phoenix, Joe Villaescusa said. While home prices are increasing, the rate at which prices are climbing may be leveling off, and that could help both first-time buyers and real estate investors alike.
When the federal government began selling foreclosed homes to investors in 2012, those real estate investors reacted very enthusiastically, snapping up properties all over the country, but especially in southern California, Arizona and Nevada, said Joe Villaescusa. Combined with declines in foreclosure rates, this enthusiasm tightened the real estate market, meaning that there were fewer properties for more people to haggle over. The shrinking inventory of foreclosed houses is one factor that could drive home prices up, but that’s not scaring investors away.
Real estate investors who enter the market to fix up a home and re-sell it are now competing with individual buyers who may be purchasing a home for the first time. Flippers may make the prices higher for everyday buyers, but there is a different category of buyer that might make the market even tighter for first- time buyers. The first-time buyers and investors who are flipping houses are also competing with individuals who purchase a home and use it as an investment, renting the property out for years before deciding to sell the property. According to Joe Villaescusa, this has driven the number of available properties up even further.
The number of cash-paying investors interested in flipping houses, also called absentee owners, dropped in the Southern California area since the January peak. This drop may be due in part to a shift in the strategies of those investors.
Within the real estate industry, there is some evidence that the prices of existing homes may be leveling off in the Southern California region, where sales have begun to strengthen. Earlier this year, the low mortgage rates may have lured new buyers into the market, which created an increased demand for few available homes. The supply is still limited; about half of what is considered normal, according to data from the California Association of Realtors. Knowing this, if you’re still interested in entering the housing market, there are a few things that you will need to understand, said Joe Villaescusa.
Tips to Understand the Buying Process, from Joe Villaescusa
If you’re interested in entering the housing market, there are several steps to take before you start looking at specific homes, and there several steps to the home buying process, points out Joe Villaescusa.
First, you should consider how much you can afford to spend. This can take some time and the process includes a bit of research. If you don’t know your credit score, you should find out, because figuring out what you can afford takes your credit score, monthly income and expenses into account to determine what your down payment will be and the interest rate you’ll be charged on your mortgage, Joe Villaescusa says. Multiple calculators are available online to help determine just how much you can afford.
Once you know that, you can begin looking for a home loan. You’ll want to obtain information from multiple sources, including public and private lenders to be sure you have a variety of options. There are several types of lenders that provide home loans: banks, mortgage companies, credit unions or even mortgage brokers. You’ll want to take into account all of the fees associated with the home loan as well as the interest rate and monthly payment, because those fees will raise the total cost of your mortgage. You’ll also want to choose a mortgage type, either an adjustable rate or fixed-rate.
When you find a home loan with terms you can live with, get pre-approved from your lending institution. This will help to narrow your search, noted Joe Villaescusa. As you search and find the perfect home, your research shouldn’t stop. You’ll have to put in an opening bid, and that bid should be based on the values of properties in the area where you plan to buy.
Once you’ve made an offer and it’s been accepted, you’ll want to hire a home inspector and have the property inspected to be sure that there are no serious structural defects and that the house is worth what you’re offering.
When it comes to the closing, you’ll want to make sure that you’ve discussed the closing associated costs with your lender. You’ll want to work with the sellers to come up with a closing date that works for everyone, and you may find that there are restrictions on that date. For example, says Joe Villaescusa, if you’re renting, you may have to consider your rental period and whether you can get out of that agreement, or the sellers may have to wait until they’ve completed the closing on their new home.