Avante Real Estate – East Bay Real Estate Blog

East Bay Blog

March 17th, 2008 8:14 PM

There is a slowly changing mindset among today's homebuyers. It is a change back to how people used to look at a home purchase before the run up in values from the start of this decade. It has been a slow process, but one that I think is healthy, and ultimately the smart way to look at purchasing property.

Until last year, people were always looking at a home purchase as an investment. They would ask me how the home was priced, and how fast I thought the property would appreciate in value. Of course I would always answer that no one could know that, and that appreciation is never guaranteed, but in the long run I always believed that eventually a home will go up in value. I still strongly believe that today, that is why I think today's prices are reaching a bargain level, but that is a topic for another blog...

The frame of mind today when a buyer is looking for their primary residence they think "can I imagine myself happily living in this house for a long time?" That is the number one factor in looking at the home, not "how much will this home's value increase?", which was the mindset over the last couple of years. Homebuyers are not as interested in neighborhood "comp's" to set value (it is difficult to set values using comparables today since some bank owned homes, or short sales can skew the value of a neighborhood very quickly.) The important factor is whether they like the home, can afford the payments and can see themselves living there for a long time.

For investors, cash flow has become much more important again. Over the first part of the decade, the biggest variable on investor's minds was how much do I have to pay now, and how much will it be worth in a year or two. The appreciation of property was the primary driver. In today's market, the investor looks at how much do I have to pay now, and how much income will the property produce at a monthly/annual rate. How cash flow positive/negative is this investment. Appreciation is always in the back of their minds, but as it will probably take years to see any significant increase in overall values, cash flow is now the #1 consideration of an investment property.

On a side note, I believe that the second home market may be in for a harder fall depending on how the economy continues to hold up against the continuing waves of bad news (today Bear Stearns was purchased by JP Morgan for $2 a share. It was either that or bankruptcy. This stock was over $150 per share just over a year ago). If we fall into a deeper recession, many people's discretionary spending will begin to disappear, and the thought of buying that second home in Tahoe, Santa Cruz, etc... will be put on hold. This will have a negative effect on real estate values in may resort cities. That still remains to be seen...

Again, these are just my thoughts about what I'm seeing in today's market, if you or someone you know is in need of professional real estate advice, don't hesitate to give us a call, until next time...

Posted by Ted & Lucy Ramos on March 17th, 2008 8:14 PMPost a Comment (0)