First Time Buyers Frozen Out of Real Estate Market
Any real estate market needs those critical first time buyers. They're not stuck with a house they need to sell, so they're free to act whenever they think the time is right. Many of the buyers of condos, townhomes and small single family residences are young singles or couples who have decided that the time is right to buy a home. These sales usually close as soon as the new owner can qualify for a loan. Once this sale closes, the owner of the small entry-level home often purchases a larger, more expensive home. The first signs of recovery from a bad housing market usually come from first time buyers.
The real estate market peaked in 2006, and since then it has been struggling. Many would-be buyers have been holding off waiting to see what will happen, especially whether prices have gone as low as they're going to. Phenonimally low interest rates and low prices that seem to have stabilized are luring first time buyers into the market place. Under more 'normal' circumstances, these people would look for a home, make an offer and get busy qualifying for a home loan. That doesn't work so well right now. There are a few extra stumbling blocks.
Many of the homes currently offered for sale are being sold because their current or former owners can't afford to make their mortgage payments. Obviously this is a less than ideal situation for the sellers and/or the lenders who hold the loans, but distressed sales are a challenge from the buyer's perspective too. Short sales make up a large portion of the homes on the the market now. This is a scenario where the home is worth less than the loan balance and the seller is hoping to get out of it without going through a foreclosure. He puts it on the market, and when an offer is received he presents it to his lender in the home that they'll accept it. And the lenders should accept offers on short sales. If they accept a lower amount as payment in full, they are losing money, both in principal and lost interest. But if they don't approve the short sale, they'll lose even more. Months will go by with the defaulting owner living in the home and not making payments. The lender will spend a lot of time and money foreclosing, and then they'll still have to sell the house, probably for less than a buyer is offering on the short sale.
Before approving a short sale, lenders are asking the current owner to prove that they are unable to continue making mortgage payments. In most cases by the time they get this far, the owner is several payments behind. Whether or not they can convince the lender that they've experienced a hardship, the chances that they will suddenly start catching up on payments is slim to none.
In practice, lenders don't often explicitly disapprove short sales, they simply drag their feet indefinitely. Home buyers often make offers on multiple homes, hoping that one of them is accepted by the lender. While they're waiting they keep home shopping and submitting offers on more homes, but often times none of their offers ever gets accepted.
In order for the housing market to recover, the first time home buyers need to be able to buy homes. Until those critical buyers can close escrow and their new home and move in, no one can move forward.
The real estate market peaked in 2006, and since then it has been struggling. Many would-be buyers have been holding off waiting to see what will happen, especially whether prices have gone as low as they're going to. Phenonimally low interest rates and low prices that seem to have stabilized are luring first time buyers into the market place. Under more 'normal' circumstances, these people would look for a home, make an offer and get busy qualifying for a home loan. That doesn't work so well right now. There are a few extra stumbling blocks.
Many of the homes currently offered for sale are being sold because their current or former owners can't afford to make their mortgage payments. Obviously this is a less than ideal situation for the sellers and/or the lenders who hold the loans, but distressed sales are a challenge from the buyer's perspective too. Short sales make up a large portion of the homes on the the market now. This is a scenario where the home is worth less than the loan balance and the seller is hoping to get out of it without going through a foreclosure. He puts it on the market, and when an offer is received he presents it to his lender in the home that they'll accept it. And the lenders should accept offers on short sales. If they accept a lower amount as payment in full, they are losing money, both in principal and lost interest. But if they don't approve the short sale, they'll lose even more. Months will go by with the defaulting owner living in the home and not making payments. The lender will spend a lot of time and money foreclosing, and then they'll still have to sell the house, probably for less than a buyer is offering on the short sale.
Before approving a short sale, lenders are asking the current owner to prove that they are unable to continue making mortgage payments. In most cases by the time they get this far, the owner is several payments behind. Whether or not they can convince the lender that they've experienced a hardship, the chances that they will suddenly start catching up on payments is slim to none.
In practice, lenders don't often explicitly disapprove short sales, they simply drag their feet indefinitely. Home buyers often make offers on multiple homes, hoping that one of them is accepted by the lender. While they're waiting they keep home shopping and submitting offers on more homes, but often times none of their offers ever gets accepted.
In order for the housing market to recover, the first time home buyers need to be able to buy homes. Until those critical buyers can close escrow and their new home and move in, no one can move forward.
About the Author:
If you're a first time buyer, you may want to circumvent this mess by purchasing a home from a builder. There are often incentives available like on these San Diego new homes. Be sure to get started on your mortgage application as soon as you can.