If You're Not Buying Real Estate Now, You're Either Stupid or Broke

I'm taking this entry a little outside the bounds of my blog's title, but it still somewhat applies.  And, if the title offends, stop reading now.  But, it isn't my title- it's actually a slight variation of the title of an article in Business Week.  It's attention grabbing, but it pretty much sums up what those of us in real estate-related industries are talking about amongst ourselves.  So, there you go- the secret is out.  It's because of things like interest rates and prices of property being down.  I mean did you see where the Silverdome in Detroit sold for $583,000? The city spent $55.7 Million to build it- pretty sweet deal for some sneaky Canadian investors...

My situation is the latter part of the title because of real estate investments that I've already made personally.  But, the "stupid" part applies to a lot of folks who are waiting on the grass to get a little greener.  The truth is the grass can't possibly get any greener! Interest rates are at an ALL-TIME low right now- this week they're at 4.31% for a 30 year fixed loan and a minimal qualifying credit score.  This is by far more important than any tax credits (like the $8000) that are available to first-time homebuyers and the $6500 available to exisiting homeowners.  Don't get me wrong, I wouldn't give my tax credit back, but the interest rates are much more of a big deal.

Here's why.  By the end of 2010 or in early 2011, interst rates will be upwards of 7 or 8%- and maybe higher.  The Fed will have to do that to try and stabilize the economy and inflation rate.  And, right now, in most areas of the Mountain South, a buyer with a saavy Realtor (preferably from T. C. Lewis & Co.) can negotiate a house normally priced at upwards of $300,000 down to around $250,000 (in a lot of cases).  So, a monthly mortgage payment with a 5% downpayment at 4.31% on an above average home in the Mountain South- let's say $250,000- is going to be roughly $1171.00 per month.  When interest rates get to 8%, that payment is going to jump to around $1743.00 per month.  That's a huge amount- nearly $600 per month!  That's more than the total monthly rent that my buddies and I paid in college!

Now, here's the other side.  We also have those "smart buyers" out there right now that are thinking that prices may continue to drop for a few more months into 2010, so they'll just wait to purchase.  I use the term "smart buyer" loosely because the prices may indeed drop, but it's all in the math.  Check this out.  If a "smart buyer" waits to purchase a home for a few thousand dollars less sometime near the end of 2010 and has to take an 8% interest rate, he or she is actually losing money.  Let's use the same house example as before.  Let's say the house that we could negotiate to $250,000 now is still on the market in late 2010.  At that point, it may be that we could negotiate it down to $230,000.  But, a $230,000 mortgage with that same 5% down and an 8% interest rate will cost around $1604.00 per month.  That's still $433 above the mortage payment for that house at a higher price but lower interest rate now!  Let's run that purchase price all the way down to $200,000 at the end of 2010.  With the 5% down and 8% interest, that mortgage payment is still $1395.00.  That's still more than $220 over the first scenario!

So, the whole key to this is thing is the math.  Buy a $300,000 home today at a fairly discounted price of around $250,000 and get a mortgage at 4.31%.  Or, you can wait a year, hope it's still on the market, and try to possibly get the place for another $50,000 less (at $200,000) and actually end up paying more for it.  Consumers have to stop looking at the "sticker price" and start weighing everything that goes into the purchase.

And, don't even get me started on the "smart buyer" who buys for that $200,000 price and then decides to sell a year later for $350,000 after setting a terrible comp for themselves in the neighborhood... their own house!  I guess it will be the appraiser's fault at that point, right?

So, the moral of this post is to avoid being a "smart buyer."  Find somebody who knows how to help advise you, and then listen to them.  Please don't prove the "stupid" part of this title right...

Radio Interview Made Me Think...

I did a radio interview for the folks at Citadel Broadcasting's 92.7FM this morning in Johnson City, and had a great time with the host of the morning show, Dave Hogan. We figured out that we both grew up in small towns in WNC (me in Sylva, him in Andrews) and knew some of the same folks- very nice guy. It's good to meet people from back home living in this Northeast TN area. Anyway, the interview topic was about green building, and it got me thinking about lost (or forgotten) technologies and the re-introductions of them and the effects on our modern culture. I always talk about this when I'm discussing green building with someone, and I haven't yet discussed it on this blog. Before there were central heating/air units, "endless" supplies of water through indoor plumbing, and electricity, people had great innovations for just making things work. Many ancient civilizations figured out that using stone floors and walls in construction, and combining that with knowing the angle of the sun at certain times of the year (for that particular location) could make a huge difference in heating and cooling the dwellings, with what we now know as heat masses and passive solar heating. They took window placement into account for good air flow at warmer times of the year. And, that was the original purpose of windows- to use them for more than just a place to hang window treatments. They were a source to both welcome and block out the elements, provide natural lighting before there was electricity and light bulbs, and to dump your chamber pot (yuck). Communities worked together to make things work for everybody with shared wells and gardens- I'll grow corn, and we'll trade you some for part of your beans. My reason for always bringing this up with folks in conversation about green building is to point out that all of these "antique technologies" have been re-discovered and introduced as "green building." It's the same with vegetables that we ate growing up from our garden that are now served in boutique grocery stores and called "organic food." I shop there because the food is good, fresh, and not injected with anything. It holds true for construction, too. All of these old technologies are revised, and they're the central principles for every major green building program. The beauty is that we are now realizing that we can take the technological advancements that we've made with heat pumps, running water, electricity, etc- combine them with these principles that were developed centuries ago, and reduce our use of utilities and natural resources very significantly. It's amazing how the mix of old with the new, both in technology and style, is coming on so strong right now. The pairing of the two is such a natural fit, and I hope that some of the folks who are "scared of green" (both consumers and builders) can start to get some perspective about how simple some of these principles are and begin to educate themsevles about how beneficial "going green" can be. Maybe we should stop calling it "green building" and "going green" and start calling it "logical, common-sense building"; "money-saving construction"; or "antiquing."

Quantifiable Green VS Advertising Ploy- Ask an EcoBroker

Don't be sold on "green" advertising ploys- ask questions. It's important that you understand that one of the biggest problems facing green building are the companies that learned a few terms that they like to throw around in conversation and display on trucks and in advertising: "Ask Me About Energy Efficient Homes." Searching for a home is an exciting time, and it's easy to get caught up in the excitement of the possibility of living green- you just need to make sure that you're getting what you think you're buying. The best way for the consumer to overcome these advertising ploy problems is to ask questions. You might consider seeking out a Realtor certified in green homes- an EcoBroker. EcoBroker training puts the Realtor through rigorous classes that educates him/her with the same knowledge that a green builder obtains during certification. An EcoBroker can guide you to ask the right questions about the builder's experience and certification for building green. There are classes and certifications that green builders who actually build green will obtain. Ask what green building program the builder follows for his/her green-built homes. All green-built homes have to follow a green building program (NAHB/ANSI Program, LEED for Homes, EnergyStar, etc) to allow for third-party certification of integral parts of the home's construction (even in the planning phase). These programs also allow for the qualifying of tax credits, loan discounts, local benefits, and (most of all) they ensure that the home is a true, green home and that you haven't fallen victim to an advertising ploy.

Post your questions or comments... There are more green rants from a green builder/developer coming soon, so until next week- peace!

Green Building- Liberal Invention or Here to Stay

We know that there's been a lot of people trying to dismiss global warming and all that it entails. And those same people have been dismissing eco-friendly design and green building as the newest yuppie fad. But, it's definitely much more than that, and it's here to stay. When it's done correctly, third-party verified, and HERS Rated- there's no question about "green" being real. The results speak for themselves, and we're slowly seeing the tide turn in those people who are "non-believers." It's all because it eventually hits 'em where it hurts- their wallet. The hold-up for the general public is that a lot of those same folks who are non-believers and think that green building is a yuppie fad are builders and suppliers themselves. There are too many builders and suppliers who are too comfortable with (my most hated phrase) "doing things the way that they've always done them" and are simply unwilling to change. It's going to be important for the laws of economics to change this- supply and demand. The public has to begin to educate themselves about what green building and remodeling is all about, it's benefits, and why it's so important, and start to demand CERTIFIED green-built homes and offices. The case makes itself, but the public has to take interest, and a soapbox has to be created for those of us with the answers to be given the forum for the questions to be asked. I know that was a mouthful, but I hope that as I start writing in more detail in this blog, that the facts about green building/remodeling and eco-friendly design become clear to everybody.

There are more green rants from a liberal yuppie builder/developer coming soon, so until next week- peace!