Contra Costa, California Real Estate

The question on every prospective buyer's mind is, "Should I buy now or wait?"

There are five variables that must be considered to accurately answer this question:

- Specific market area
- Intended length of ownership
- Interest rates
- Mortgage qualifying guidelines
- Availability of Seller Credits toward the buyer's financing costs

Specific market area:
While it is true that the average home value has dropped nationally, there are markets where home prices continue to appreciate. 

Real estate is extremely market specific with price stability affected by multiple factors such as location, access to public transportation (gas prices have made commuting an expensive option), distance to amenities, school scores, etc.

Within my own county of Contra Costa in California, there are dramatic variances in values.  Some of the values in the outlying areas have depreciated by 25% or more while the "core markets" have simply softened or, in some cases, remained stable.

Intended length of ownership:
Real estate has returned to a long-term investment strategy.  If your housing needs are short-term and you require a profit upon selling, this is not the time to buy.

Interest rates:
While the Federal Reserve has lowered the Prime Rate (impacting short-term financing), mortgage rates continue to rise.  Additionally, effective 3/1/08 FNMA has instituted required rate/fee premiums to be charged to all borrowers with less than 680 credit scores and less than 30% down. 

A rule of thumb is that a .50% increase in mortgage rate will offset the savings from a 5% price reduction.

Mortgage qualifying guidelines:
Credit score and down-payment requirements to obtain a mortgage have become more stringent, many loan programs require full verification of income and assets and options for interest-only payments have been limited.  The end is not in sight. 

Availability of Seller Credits toward the buyer's financing costs:
Many sellers are offering credits to buy-down the buyer's interest rate and offset many or all of their loans costs as an incentive to purchase.  As sellers remove their houses from the market and the real estate market normalizes, these credits become less common.

Should you buy now or wait?

If you have a credit score of 680 or higher, 20% - 30% down-payment (not dependent upon selling your home), and will qualify for the monthly payment if interest rates increase .50% or more, then you can afford to wait.

If your credit score is less than 680, you have the current minimum down-payment but need a seller credit for the loan costs, you can afford your monthly payment, you intend to live in the home long-term, you are looking in stable or "softened" (but not distressed) market, and you will not qualify if interest rates increase, then buying now may be a better option.

We can test, certify and legislate loan officers and lenders but the real answer is to reconnect cause and effect.

When I joined the mortgage industry 20 years ago - before the onset of Mortgage Backed Securities - mortgages were funded as part of a company's investment strategy.  The title Loan Officer meant you were an Officer of the company and, as such, responsible for generating mortgages that would benefit the client and the company's financial performance.

To ensure that we understood the cause and effect of our origination decisions, we received a monthly report of our clients who in early payment default or who were making late payments.  As the Loan Officer with the client relationship, we were expected to contact the clients on that list, find out the cause for the delinquency, determine options and make payment arrangements. 

That early experience taught me that the quality of my counsel during the application process had a direct impact on the time spent counseling after the fact as well as my clients ability to not only buy but keep their homes.

The real answer to the mortgage and housing crisis is to reconnect cause and effect.  If a loan officer does a poor job providing accurate information and counsel at application, they will soon spend their day as a credit counselor and debt collector rather than on income-generating origination activities.  Behaviors will change.