There is an old saying related to investing. "Buy low" sell high". This is great advice, of course, the tough part is knowing when prices are actually high or low relative to the future.
When it comes to real estate in today's market, the simple law of supply and demand favors homebuyers more so now than at any time in the past 5 years.
When it came to Southern California real estate, when buying a new home, you would have to put your name on a priority list, camp out for a phase release or "win" a lottery at a new home development, just to have the opportunity of paying whatever price a builder asked for their new homes. As home prices soared, the desperation of homebuyers only led to bidding wars in resale and frustration on being locked out of the housing market. While none of this may be news to you, consider the following:
1. It takes years for developers to aquire land, plan a development, get permits and build a staff of people who can build and market their product.
2. Most builders bought their land years ago before the real estate run-up, so their pro-formas factor in a lower sale price than even current market conditions allow for.
3. While it's a home to you and me, it's a product to builders, much like cars are to Ford and GM.
4. Builders have stockholders to answer to and their own jobs to worry about, so even if they lose money on a house, a sale helps cover their built-in overhead.
What does this mean to a homebuyer today?
1. You have many more choices. You don't have to take the 1st house you win in some lottery.
2. Builders have backed off their prices faster than resale homes have.
3. Builders can throw in goodies like upgrades, landscaping, and/or attractive financing to move their inventory.
4. You get a great deal on a new house...
Some examples: A new development in Indio by a well known national builder. Asking price on a new 1900 SF house $355,000 including upgrades. Discounted $40,000 for a 30 day escrow.
A new home in Coachella - 1 year of mortgage payments made for you by the builder. Estimated value $25,000 on a $300,000 house.
How about a luxury development in Rancho Mirage with asking prices starting at $1,350,000 - 30 day escrow price under $1 million...
La Quinta house fully upgraded including pool and spa $100,000 discount, sold at $599,000.
La Quinta golf course retirement community. New homes discounted by $100,000. Available in the low $300,000's
Here's the catch...once the builders clear out their backlogged inventory, the deals tend to moderate. Discounts disappear.
Why? Because they have slowed down their building to firm up pricing.
I saw this happen in 1991 in South Orange County. I bought a house for $100,00 less than the advertised price of $375,000. Within 6 months, comparable homes were selling for $50,000 more.
So you might be saying: Ok, but I'm waiting for prices to hit bottom. The problem with that is you never know when they have hit bottom until after they start rising again. Since now most others are doing the same...waiting, now is the best time to do the opposite and buy...especially new and from a builder with standing inventory.
Last year while the market was still "hot" and rising, I sold 2 properties. I got more for them than any comparables have sold for since. I knew if everyone was buying, it was time to sell. Was I lucky? Yes, but I also had a gut feeling that I should do the opposite of what the herd was doing.
Well, This is my first post on my first blog. I hope I can help you with my real estate and mortgage experience. Hopefully my insight will help you make the right choices you might be facing.
