Menu
Cart 0

Quit whining about how tough the home market is. GET IT DONE!

Posted by John T. Reed on

Today’s WSJ has an article on the housing market. Titled “Would-Be Home Buyers Shut Out Of Homes,” it basically says that prices are rising fast with almost all homes selling for more than asking price and that down payments are either 100% or at least bigger than normal with many first-time buyers doing what our son Mike just did: getting down payment money from parents.
.
Low down payment loans like the VA nothing down, FHA 2%, and PMI 5% are still doable, but are at a big disadvantage.
.
The parental down payment help is described as a “gift” in the article. During our recent home purchase, I must have told our lender six or seven times, “It is NOT a gift. We are tenants in common co-buyers.” She kept trying to get me to sign a gift letter. I felt like I was back in the Army getting pressured to sign a false motor vehicle report or a false arms inventory.
.
The basic problem was 99% of the time nowadays, it’s a gift. “I do not care. We are not giving such a big gift to ONE of our three sons. Tenants in common.” They finally did it that way.
.
50% of buyers now putting down more than 20%. BUT NOT EVERYBODY! 25% ARE now paying all cash. BUT NOT EVERYBODY! FHA market share which was 25% in 2010 is now 10%. BUT NOT EVERYBODY is getting a conventional mortgage! Median existing home price was up 19% from April 2020 to a year later according to the Realtors®.
.
A Realtor® survey said 27% of sellers were unlikely to accept an FHA or VA offer and 6% would refuse such on offer out of hand. BUT NOT EVERYBODY is rejecting such offers!
.
One agent said at least 50% of his first-time buyers were getting gifts from parents for down payment money. BUT NOT EVERYBODY!
.
We gave each our three sons $25,000 matching funds years ago to encourage them to buy homes. It worked. All three now own homes, two of them worth $1 million or more.
.
One was not much concerned with making a lot of money salary-wise. Owning his first home seemed to cause him to abandon that mindset and he now makes six figures.
.
Another spent some time “finding himself” in low-paying jobs to use the 60s phrase. He how makes more than the other two sons which enabled him to buy a home in spite of relatively low savings.
.
Giving large sums of money to your kids strikes me as a bad idea in general. The goal is to make them financially independent of their parents. You can make a Goldilocks level of encouragement and help and it appears we did. But too much can be corrupting I think. And too little might have meant they never got on the home ownership train in our case.
.
But also note that our son’s home is a real estate investment property for us. We are his landlord, but that is generally far better than being in the landlord business where we have a stranger for a tenant. It was a great hedge against inflation place to put some of our net worth. It is a non-dollar-denominated asset. I thought we were getting too much in foreign currency. We got the down payment money out of those foreign accounts.
.
.
CoreLogic says the average first-time home buyer put 9.1% down in 2021, up from 8.4% in 2020. Move-up buyers put down 16.6% on average. So it CAN be done and IS being done. Those stats actually tell a more comforting story than the scary anecdotes in most of these news stories.
.
But I am very disturbed to read about people throwing their hands up and quitting looking. Since 1967 when I was a senior in college, I have been studying real estate investing, investing in real estate, working in it as an agent and as a property manager, and I wrote 21 books about it and thousands of newsletter and other articles about it. I also made speeches and taught seminars about it nationwide.
.
http://www.johntreed.com
.
Real estate is different from other financial activities. It is DEAL ORIENTED. In deal-oriented activities, you give out your home phone number. If you snooze, you lose. To buy a property to have to work yourself up into a shark-in-a-feeding-frenzy mode.
.
At one point, I went to the factory where they printed the local daily paper to buy mine as soon as the first one came off the press. And I was not the only guy there buying damp newspapers. That was pre-internet when the paper was the only way to find out about new for-sale listings fast.
.
There were also multiple listing books then. The book came out once a week. I was in the South Jersey suburbs of Philadelphia. The books were printed across the Delaware River in Pennsylvania. Then a delivery truck went to each Realtor® office in the NJ suburbs. I called the delivery company and asked what their first stop was. A Willingboro shopping center, in Burlington County, 15.6 miles and 30 minutes north of my office in Collingswood in Camden County.
.
I told the guy I would meet him there to get my copy. Once, it had a new listing for a 12-unit apartment building. That was rare. Plus it was underpriced. I went to the phone booth (no cell phones than) at the Willingboro shopping center where that Realtor’s office was and made an appointment to inspect it that morning. I bought it. Then a deluge of buyers called as the MLS books arrived around. Too late.
.
If you can imagine, I later got even faster, buying buildings before the owner even knew they were for sale. In Fort Worth, I identified all the buildings of the size I could afford from the tax assessor’s records. Then I sent them a post card to each owner saying I was coming to TX from CA for a week and I was damned well going to buy someone’s building, that this was the third time I was doing this and I had already bought two buildings the addresses of which I gave them.
.
I said there would be no commission and that I was putting 25% down. I bought an $835,000 33-unit complex in Fort Worth from a California owner who had no intention to sell until he got my postcard and who flew to TX to meet me there.
.
That, sports fans, is how you buy real estate. Whining does not get it done.
.
The stats above say the percentage of no-down, 2% down and 5% down deal has diminished. Yeah, but they did not disappear off the face of the earth! YOU ONLY NEED ONE! Same applies to getting a mortgage which is sometimes hard.
.
Then there is the “I’ll wait until the market stops being crazy,” mistake. No. No. No.
.
I did that in the late 1970s here in the San Francisco area. In South Jersey where I came from, $40,000 bought you a very nice house then. Same house in CA cost $80,000 then. We got all huffy and rented.
.
Then, in 1980, we had to pay $152,000 for the $40,000 house. And we borrowed a little bit of the down payment from my father-in law.
.
Thank God we finally wised up. It only cost us $152,000 - $80,000 = $72,000—about half the price of a home!
.
Since the Depression, with the exception of the Sub-Prime Crisis in the late 2000s, home prices have RATCHETED UP. Yes, the market runs hotter and colder at times, but it does not go down.
.
For one thing, when the market softens, SELLERS get huffy and say, “We’re not going to GIVE the damned thing away!” And they refrain from selling now. That lowers the supply of homes for sale and is kind of a self-fixing behavior for the market in the grand scheme of things. They are wrong and stupid to do that, but it explains why it is a ratchet rather than up and down like stocks.
.
In other words, you CAN buy a home now if you adopt the right mind set. You may have to buy farther out, or even in another state or part of your state. You may have to become Speedy Gonzales. You may have to save a bit more. You may have to try to meet the seller in person so they get a chance to like you. That worked for us when we bought our first CA home in Moraga.
.
But you must get into that VICTORY OR DEATH, SHARK IN A FEEDING FRENZY mental state!
.
Oh, you’re not comfortable with that? I am not comfortable with not owning the biggest principal residence you can safely afford at all times in your life! I just wrote a whole book about that. It is at the printers.
.
All these recent articles have anecdotes about people looking for a year and making multiple offers and constantly getting beat by $30,000 or more. RAISE YOUR DAMNED OFFERS, MORON!
.
You can’t afford to? So go to where you CAN afford to pay the going rate. GET IT DONE!
.
You have two choices in life. Find excuses for losing or find a way to win.
.
And remember one other thing. In this crazy market, the moment you are the winning bidder, you start benefitting from the “crazy” market. By the time you close, it may be clear that you got a bargain and already made money.

Share this post



← Older Post Newer Post →