" I will overpay for your Home!"

Wow, 4 months ago we had buyers begging to buy homes, some paying HUNDREDS of thousands over the asking price. Today they are all waiting for the crash. What's really happening in real estate in Southern California?

Human psychology is tough to figure out. When there is NO INVENTORY and low interest rates, they will happily brag about how much they overpaid for their home. " I had to bid $100,000 over just to get the property!" We have all heard it.

Now when interest rates have crept up a little, the buyers sit on their hands while inventory increases, and prices come down. The logic is that prices will plummet like they did in 2008.

In out FEAR based lives we see this all the time. Logic has been replaced by emotions. Emotions are driven by the internet playing with your mind. One day you read that world is coming to an and the very next day all the articles are saying how the world is awesome.

The rational mind moves ahead with caution but still moves ahead.

Anyone who is into real estate will tell you this recession will treat real estate differently.

Why? There are a few very simple reasons.

1. Lenders have been MORE responsible with lending over the last 14 years. They have required some buyer investment and have a better secured position with the owner having equity and also by actually qualifying for the loan. People with high credit scores rarely miss payments or default. Financially conscious people are a great bet for lenders. The huge number of short sales and foreclosures won't happen this time around.
2. 25% of buyers are paying CASH. Yes, you heard me, 25% of purchases are CASH BUYERS. They are getting deals and loving it. More homes to choose from and sellers are willing to negotiate.
3. Investor groups are buying up single family homes and renting them out. This will be the biggest issue we see in the next 20 years. There is so much cash out there from the stimulus and profits that large investor groups can buy and hold thousands of homes. This will drive up rental rates and make private ownership even harder. 16% of current sales are investors grabbing up deals. While the average home buyer waits, the investors are getting hot and excited to buy up the inventory.
4. HOME OWNERSHIP IS THE BASIS OF ALL WEALTH IN THE U.S. Most people rely on the home equity to fuel their financial life. They use their home for a savings account. As they accumulate equity, they will use that equity over and over again. Weddings, second homes, deaths, divorce, college are all paid for in a lot of cases with accumulated equity. Even if interest rates go up homeowners will refinance to get that money when needed.
5. Everyone needs a place to live. We are still experiencing the largest shortage of housing in history. In California there are over 3 million people who cannot find suitable housing to buy.
6. Interest rates are temporary and home ownership is forever. Today we have some modified lending coming out. ARM loans, buy downs, Step downs. I talked with a very intelligent and financially savvy buyer this week and when I mentioned a 10/6 ARM loan to him, he almost shouted- NO ARM LOANS! Really? 10 years secured rate at 4.5% on 1.9 million dollars? Why not?? Most people hold a home loan for 3-5 years before selling, paying down or refinancing. If you are not familiar with ARM loans, call some lenders. These loans can work for a lot of people. Know your options.

The point is, why are buyers happy to overpay, but hesitant to buy when interest rates move up a little. Irrational thought.

Interest rates have hovered around 7.5% since the 1950's. Taking a 5% loan today is not a HORRIBLE RATE. It is a good rate. Taking advantage of a buyers' market is a GREAT IDEA. Sitting out and waiting is a bad idea. Will you wait till interest rates are at 7 or 8%? Buying now you will look like a genius.

If you bought a home in Southern California. 4 years ago, and you paid $750,000 for it. Today it is worth $1,300,000 or more. Even if you paid 6% interest, the home prices have improved much faster than the interest you paid.

As the saying goes, "The best time to buy real estate is 20 years ago. The next best time is NOW."

Jerry Koller - Owner International Home Realty, Orange County CA 714-330-1027 or [email protected]