Wednesday, November 21, 2007

Florida Mortgage & Real Estate | Opportunity Costs in a Bad Market - Why to buy now

Can a very fundamental notion within Modern Economic theory help you make a decision whether to make a move or not in this current Florida Real Estate Market downturn? 

There is no doubt that if you're living in it or renting it out, you want to be sure you're making a wise financial decision (note I did not say investment!)... but sometimes with such bad market news you're going to hesitate, especially if you're reading horrible articles like on MSN Money.

That's what is happening here in South Florida.  There are listings that are just sitting there.  Sure, sometimes they are priced wrong for the current market and have ignored the dips in prices... but the buyers are waiting because there are still some sellers acting like we're in a sellers market. 

There are buyers that are gun-shy because they think that they'll lose some value right off the bat.  I had a conversation with one a couple of months ago.  He said that he thinks there is another 2-3% drop before rebounding.  I told him this:

First of all, there is no magic prognostication software to determine what's going to decline and how much.  Overall, he COULD be right... but that doesn't mean that every little area will suffer it...

Some may go up and just have the average brought down due to foreclosures or a glut of Condo inventory in Miami.  West Boca Raton (75mi North of Miami Beach) might be more stable because it isn't condo based and he's looking for a home near a particular demographic neighborhood and schools for his son. 

What is more important to consider is that Rates aren't going down significantly for a while.  SO I spoke to him about ENTRY and EXIT Strategies.  I told him that if he waits 6 months and the rates tick up 1/2%, he could easily be $100-200 more per month depending on the loan amount - even if he sees a 5% decline in the property values he still will pay more monthly which will cost him much more in the long run! 

The Opportunity Cost of NOT buying could mean:

  1. SCARCITY - Qualifiable - Losing the property that you love and not being able to replace it
  2. SECURITY - Qualifiable - A bird in the hand is better than two in the bush - there is security in knowing that his family will be in place and comfortable before the fall term begins ...
  3. PRICE - Quantifiable - the property may go UP in value based on other market factors while other parts of the market or the market as a whole goes down
  4. RATE - Quantifiable - the interest rates may rise causing him to end up spending more on the monthly payment than if he were to buy today
  5. UNKNOWN - Qualifiable - things could crop up that cause an issue that keeps him from qualifying for a loan later - Quantifiable - there may be nothing suitable in that area to buy in 4-6 months

So I summed it up this way:

"If you're buying a home - buy a house you LOVE.  If you have this many regrets causing you to keep from purchasing then maybe you just don't LOVE the house.  Don't, though, let a good deal or the right house slip away from you because you're betting on the market.  Know what is controllable and what isn't.  The right house could disappear as quickly as it came on the market and you could miss out on the right property while trying to figure out the right time to make your move"

More Florida Mortgage and Real Estate News You Can Use From
David A. Podgursky, MBA
Your Source for Residential, Commercial, Investment and Relocation Mortgages in Florida

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