Real Estate Matters
Why the First Time Home Buyer Matters
Over the past decade, San Diego has experienced boom and bust real estate markets (along with the rest of the country). Now, however, we seem to be settling into more of a typical market. There will still be swings up and down, but I think the rapid speculation that caused the major increases eight to ten years ago, as well as opportunistic investors snapping up foreclosures and short sales, are both in our past. The future real estate market is going to be more traditional. What does that mean for you?
For starters, it means longer market times and more complex transactions. With lending standards tighter (to prevent the speculation that caused the boom-bust cycle), buyers need to have more money to put down (I discussed this and the necessity to show your home in pristine condition in a previous issue); and because debt-to-income ratio requirements are tighter, very few buyers can purchase without selling their current residence. This is the real factor in creating complex transactions and why the first time home buyer is important.
Without the ability to purchase a home (say it’s an $800,000 home), without selling his existing home, a buyer must write an offer contingent on the sale of his home. Therefore, the offer on the $800k home only results in a transaction if the buyer gets an acceptable offer on his home (say for $600,000) first. So the buyer of the $800k home needs to sell his home for $600k (as an example). Similarly, the buyer of the $600k home likely has to sell one for $400k. That’s where the first time home buyer comes into play. The first time buyer is not just purchasing a home for $400k, he or she is enabling a string of sales. Before the last boom-bust cycle, the general consensus was that each first time buyer purchase resulted in a total of 3.3 transactions. I think we are returning to that ratio now.
So, if the housing market stalls, expect to hear about the need to relax standards for first time home buyers. When that happens, you can expect market activity and prices to start increasing shortly thereafter.
Scott Voak, the top selling agent in 92127 since 2008 (data from SANDICOR MLS as of 6/1/2013) and the host of Real Estate Matters that airs Sunday Mornings at 10 a.m. on AM 1450,
provided this information.
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