Who are the winners and losers in the housing market for 2009? It’s too early to tell.
Many types of buyers, sellers and fence sitters seem well-positioned for a victory lap while others are lagging. Bankrate talked with real estate agents, academics, consumer advocates, industry watchers, buyers and sellers to discover who are the odds-on favorites, the nail-biters and the long shots.
Here, in no particular order, are some potential winners for this year:
14 real estate winners in 2009
1. Buyers
2. First-time buyers
3. Fence sitters
4. Buy-and-holders
5. Real estate brokers
6. Buyers with financing
7. Mortgage shoppers
8. Move-up buyers
9. Con artists
10. Buyers with fresh data
11. Financially troubled homeowners
12. Cash buyers
13. Contented homeowners
14. Sellers in solid markets
Buyers. “It’s obviously a great year for buyers,” says Robert Kiyosaki, co-author of “Rich Dad, Poor Dad.” “Prices are still dropping and, if you have cash, they’re even lower.”
First-time buyers. “They’re not saddled with a lot of debt and can take advantage of a lot of the state and federal programs,” says William Poorvu, author of “Creating and Growing Real Estate Wealth” and professor emeritus at Harvard Business School. The $8,000 tax credit for first-timers who buy this year is especially popular.
Fence sitters. This time waiting may have paid off. Potential buyers now have a climate that combines low interest rates, low prices and, if they’ve never owned a home before, a sizable tax credit next April. “Anybody looking to buy a house that doesn’t need to sell a house” is a potential winner, says Glen Lazovick, senior vice president for Mid-Atlantic Federal Credit Union. “Prices have come down; they can negotiate.”
Buy-and-holders. “Real estate provides shelter,” says Dick Gaylord, immediate past president of the National Association of Realtors, or NAR. “It provides a place to live. It’s not a short-term investment.” If you’re looking for a good deal on a good home that you plan to live in for a long time, it’s a great time to buy.
Real estate brokers. “Sales are bound to pick up a little bit,” says Poorvu. “They’ve had a terrible year or two.”
Buyers with financing. “Do the prequalification and, often, the financing up front,” says Ron Phipps, broker of Phipps Realty in Warwick, R.I. “Poor credit may not get it.”
Mortgage shoppers. Buyers and potential buyers who research, shop and know their mortgage options can really come out ahead. “Local banks and credit unions are a source of good service and affordable money,” says Phipps. For those who may not have 10 percent, 15 percent or 20 percent to put into a down payment, FHA is a popular option.
Move-up buyers. In some markets, entry-level home sales are showing signs of increasing. If your home is on the low end of the price scale, you are in a better position to sell and use the proceeds to move up to a level at which the sales are still stagnant. “The higher-end market, in most areas, is weaker than the entry market,” says Eric Tyson, co-author of “House Selling for Dummies.” But buyers also need to show income, credit and job stability.
Con artists. When people become more desperate, “scammers are incredibly resourceful,” says John Breyault, vice president of public policy, telecommunications and fraud for the National Consumers League. Especially prevalent this year are “mortgage relief” scams, he says. Be suspicious of anyone who asks you to stop paying your mortgage or wants you to pay them instead, says Breyault. Other warning signs to look out for are demands for large amounts of money upfront before help is given, and companies that use names or Web addresses deceptively similar to actual existing groups or programs. If you’re looking for a relief program connected with a government entity, call or visit that agency’s Web site independently for contact information.
Buyers with fresh data. The market changes moment to moment. These days, the comparable sales buyers use to help set a price need to be 90 days or newer, Phipps says.
Financially troubled homeowners. If you’re having trouble making the payments, investigate the government’s Making Home Affordable program. Under the plan, qualifying homeowners can get help with refinancing or with modifying their existing loan. In both cases, monthly payments won’t exceed 31 percent of pretax income.
Cash buyers. “If you have cash today, you’re a winner,” says Kiyosaki. One buyer he knows was interested in several $250,000 homes selling for $110,000. The man paid $70,000 each “because he paid cash,” says Kiyosaki. “Cash gets you a better discount.”
Contented homeowners. If you love your house and can afford the payments, consider yourself a winner. The payment sweet spot is 25 percent to 30 percent of your net income, says Barry Zigas, director of housing policy for the Consumer Federation of America.
Sellers in solid markets. Not every market tanked. Some are on the upswing already. Interest rates are low now, and in markets “where value held up, it’s an excellent time to sell,” says Zigas. Ditto if you bought your house well before the boom-bust of the past few years and have plenty of equity.
The flip side
A roller-coaster real estate market, toxic loans, record numbers of foreclosures, a run on refinancing and economic uncertainty have left a number of homeowners, buyers and sellers more than slightly nauseous. Here are some of the folks who could get squeezed:
12 losers in 2009 real estate market
1. Sellers seeking unrealistic prices
2. Borrowers “timing” the interest rate market
3. Overleveraged sellers
4. Homeowners who can’t afford their mortgages
5. Sellers who bought at inflated prices
10. People who buy for price instead of value
11. Buyers and sellers waiting for approval in a short sale
12. Foreclosure buyers who don’t do their homework
Sellers seeking unrealistic prices. Sometimes, appraisals don’t reach the level of the contract price because sellers are not being realistic about what a property’s really worth,” says Tyson. He advises sellers to get real about the price, improve the home’s value or pull it from the market and wait.
Borrowers “timing” the interest rate market. “Lock in good rates now and don’t speculate on interest rates,” says Poorvu. Consumers waiting to lock in a low rate, figuring they can save more, “are likely to be real losers,” he says.
Overleveraged sellers. Owners who owe up to or beyond their current home value are in a dicey situation, but only if they have to sell, says Gaylord. “If they can hold on awhile, that value will come back,” he says.
Homeowners who can’t afford their mortgages. Many are left stretching to make payments or trying to sell the home for more than the market will bear. Help is available. Some homeowners will qualify for relief under the Obama administration’s relief program. Or, try to work out an arrangement with your lender or loan servicer, either on your own or with the help of a housing counselor. Find a HUD-certified counselor on their Web site or call (800) 569-4287. You can also locate a housing counselor through the National Foundation for Credit Counseling. If you’re a veteran or it’s a VA loan, contact the U.S. Department of Veterans Affairs at (877) 827-3702.
Sellers who bought at inflated prices. “If you bought your house last year or in 2005 with a low down-payment mortgage, this is a terrible time to be selling,” says Zigas.
Homes and neighborhoods losing to foreclosure. In a normal market, there are 150,000 to 160,000 bank repossessions nationally every year, says Rick Sharga, senior vice president of RealtyTrac, which publishes foreclosure data. Right now, the market is seeing half that number every month, he says.
Builders. In an average year, builders start construction on 1.3 million single-family homes nationwide, says Robert Denk, assistant vice president for forecasting and analysis for the National Association of Home Builders. In 2008, only 617,000 starts were reported.
Sellers in bad markets. “Any seller who is being forced to sell in a declining market is losing big time,” says Zigas. “Particularly recent buyers.”
Owners who want to refinance in a hurry. “It’s a little more difficult today,” says Gaylord. “Appraisals are more stringent.” Shop around and allow plenty of time to get it done (everybody has the same bright idea). If the initial answer is “no,” keep shopping.
People who buy for price instead of value. “A low price doesn’t make it a good investment,” Kiyosaki says. Look at the whole package.
Buyers and sellers waiting for approval in a short sale. “A lot of buyers think short sales are the way to go,” says Phipps. The idea is to get a homeowner out from under a loan that’s higher than the house value and give the buyer a market-priced deal. But real estate agents and industry watchers have noticed that the transactions often drag out for months, frustrating buyers and sellers. “It’s not an efficient process,” says Phipps.
Foreclosure buyers who don’t do their homework. With many foreclosures, the sale really is “as is,” says Phipps. That means you have to live with (or correct) any flaws you find. “It’s not always as good an opportunity as you think,” he says. A safe bet is to have an inspection done before you buy.