Thanks to everyone who has contacted us with questions and thoughts for upcoming Real Estate trend reports.   Let’s dive into to a very common question here in the Tampa Bay area:

 

“I have equity in my home and don’t know if I should sell now or wait for two or three years to hopefully sell for more then?”

 The short answer:  You will NOT be able to sell for more in 2-3 years.  Holding your real estate waiting for the market to rebound is a long-term (7 to 10 years).

Let's look at why:

In 2009, Real Estate values in the Tampa area dropped by 12%, a much lower decline then in 2008, which saw a 22% drop in home values. As we look toward 2010 and 2011, we see short sales and bank-owned property (foreclosures) continuing to be major factors in the housing market.  Let me explain to you why the short sales are so toxic to our home values.

 

House A was purchased in July of 2005 for $485,000 with a loan amount of $460,750.  The seller can no longer afford the home and lists it as a “Short Sale.”

 

House A is listed on MLS for $310,000.  An offer is presented to and accepted by the homeowner. The seller’s agent sends the offer to the Bank of House A. Bank A orders a Broker Price Opinion and an Appraisal on House A to determine market value.

 

Brokers Price Opinion: $295,000

Appraisal Opinion is $305,000.

 

In the opinion of the bank, the value of this home is $300,000.

 Here is where the downward cycle starts: Since the offer that was made was $275,000 the Bank A WILL ACCEPT that offer as a sales price. Almost all banks will short sale homes at 90% of believed value. (Remember, the price the banks will accept is a function of the market value of the home, not necessarily the home’s list price)

 

While House A is going through the short sale process, a neighbor three doors down lists his home for sale as a short sale, it’s the same floor plan as House A and gets listed at $305,000.  As soon as House A closes in August, House B gets an offer that is accepted by the homeowner and sent to the Bank of House B.  Bank B orders a Brokers Price Opinion and an Appraisal to determine the value of House B.

 

Brokers Price Opinion: $295,000

The Appraisal Price Opinion: $275,000 (House A is now a comparable sale)

 

In the opinion of Bank B the value of House B is $285,000. The offer of $265,000 is accepted by Bank B, since it is within 90% of Bank B’s perceived value of the house.

 

It is this cycle that repeats itself time and time again that plays a major reason for home values dropping. This is why we will see home prices continue to drop into 2010 and 2011.  There is still a huge percentage of homeowners who are upside down, and many more mortgage defaults are still looming.

 

For buyers, the downside of purchasing short sales is that they may not be approved at all.  Thus we have many buyers today who have decided to or cannot consider short-sales, and are willing to pay more for a non-short sale property in good condition, priced competively. 

 

Let’s look toward the future…

 

We expect home prices to drop 5% to 8% in 2010 and 2011. 2012 will start with a slow drop in value then level out in pricing, so expect home prices to drop 12- 18% over the next three years.

 

I know… I know…you’re saying, “John, how can you be so sure the drop will continue?”

 

47% of all active listings in New Tampa are either bank-owned or short sale listings. AND

78 % of all pending homes, (homes under contract) are bank-owned or short sales.  These lower numbers are becoming the comparable sales and appraisers have no choice but to use them.  The downward pressure on the housing market is intense. 

 

The market can’t cleanse itself out mainly due to the time it takes to get a short sale approved (think 4 to 12 months for each transaction). New sellers are then becoming short sales due to these dropping values.

 

The good news is in 2013 we should see home prices going up!  The bad news is we will have a 12%-18%  drop to make up. (the total drop in value coming from 2010-2012).  After that, the best we can hope for is  2-4% annual increase in home values each year due to the fact that we will still have short sales in our market for years to come, hopefully not nearly as many as we have today!   

 

 

CONCLUSION:

Do the math…if it’s going to take 4 to 7 years to make up for the falling prices that lay ahead and the increase of values won’t start for three years we will not see today’s pricing. (Feb 2010) for 7 to 10 years.

 

If you’re thinking of upsizing or downsizing in the next 7 years DO IT NOW.  

 

If you see the wisdom of buying another home to move into and keeping your current home as  investment property, DO IT NOW.

 

If you’re thinking about buying an investment property and staying in your current home, DO IT NOW.

For the compelling reasons why to buy now rather than wait for prices to drop even more,  please read this:   http://tampahomegroup.com/buying_tampa_real_estate

 

PLEASE call us right away if you or anybody you know might be thinking of waiting to sell. We can help you save your equity. Or limit the amount you may need to bring to closing.