Relaxing anti-house-flipping rules can be a win-win situation, with one caveat......
Posted by David Zadareky on Sunday, January 16th, 2011 at 12:54pm.Kenneth R. Harney published an article on Jauary 15th with the same title.
I believe his analysis is right on the money. Traditionally, you would want to discourage flipping houses with high leverage borrowing because it can lead to an artificial housing bubble. However, this market is different than any other market that we've seen in a LONG, LONG, LONG, time.
There are really two types of buyers in this market; investors - looking for the lowest possible price, and buyers - looking for the perfect home. For the market to fully recover we need these two groups to start working together.
The buyers whom are not investors seem to only focus on the Perfect 10 house. It's not just that they want all the repairs done prior to settlement, they want all the UPGRADES before they will seriously consider the home on their short list. An uninformed spectator might look at this buyer and call them spoiled. They're not, they just don't have either the expertise to do the upgrades themselves and/or the disposable cash to invest into the home. And, perhaps this is unique to our market, they don't have the TIME.
As a result, a house either has to be in great and upgraded condition to sell, or it has to be priced at bargain basement prices, leaving those sellers in the middle in a dangerous position with a tough choice to make. Drop the price, or spend the money and improve the home. Well, for many sellers they don't have either option.
An appropriate move by lenders is to actually encourage new buyers, especially with low down payments, to buy fully renovated houses. Why? Because the total cost of ownership should be far less in the first 5 years of ownership. This is the most critical time period for a new home buyer. They don't have the savings to deal with roofs, HVAC, major appliances, windows, etc, nor the experience on how to maintain an older home.
In addition, to make sure prices don't become inflated, I'd like to see lenders adopt the following policy on maximum loan to values. The loan to value would be determined by the lowest of: 1) Sales Price 2) Appraised Value and (this is new) 3) List Price. This is to make sure that lenders don't finance reckless speculation. By adding the list price to the mix, this tells the market that if you want to pay over the asking price, then you can do so with your OWN money and not the banks.
If the house is truly worth that price, let the seller set the list price that high and see what the market does with the price.
In any event, the market needs these houses to turn over and they need to be turned over at a price and CONDITION that will promote stability for the market and the buyer.
Related Links
Print
ShareBe the first to comment on this blog entry!