With 14 1/2 to 16 percent mortgage rates the norm across the country -- and no relief in sight -- you might doubt that this is a smart time to plunge into real estate.
But take a hard look at the facts: They point strongly to the conclusion that the next two months should provide one of the best buyers' markets in years -- better even than February and March of 1980. If you're a home buyer or investor, and had decided to hibernate for the winter and get active again in the spring think twice.
Housing price data from Washington, D.C., to southern California reveals that, for the first time in eight years, the inflationary spiral in most markets has leveled off significantly. Home prices aren't falling, but they stabilized with a resounding thump in the third quarter of 1980. In an economy where everything else is jumping 10 to 12 percent, houses and condominiums have become temporary bargains.
Builders and homeowners with properties on the market now are looking at dismal prospects. Aside from special situations such as southern Florida's and ski resort areas such as Vail, Col., December and January are the worst sales months for housing.
Add in the current, bizarre interest-rate situation plus the likelihood of recession through the first quarter of 1981, and you end up with a pretty grim picture for sellers. That, in turn, makes them highly motivated listeners when you come in with a low offer.
Unlike February-March 1980, when tens of thousands of houses sat unsold in metropolitan markets with "non-assumable" mortgages and sellers who wouldn't participate in their buyers' financing, more people understand creative financing techniques today.
Savings and loan associations, in particular, are open to negotiations on assumptions of "non-assumable" loans in their portfolios with 7 to 10 percent interest rates. Assumptions represent the building blocks for most creative financing; on top of them you can arrange seller take-backs of second mortgages, wraparound loans, and contracts-for-deed.
Without them, things are much tougher. Despite the presence of "due-on-sale" clauses on most conventional mortgages with rates in the 8 and 9 percent range -- giving lenders the right to block assumptions and kill creativity -- a much higher percentage and kill creativity -- a much higher percentage of S&Ls and banks than you would imagine will go along with compromise rates if they're approached properly.
One of the nation's experts in negotiating compromise rates with S&Ls, Les Glickman, senior vice-president of a major St. Louis real estate brokerage firm, says he's finding "even more flexibility" on the part of lenders right now than he did during the February-March crunch.
Glickman and his realty staff meet constantly with lenders who hold mortgages on properties about to come on the market. When the note rate on the underlying home loan is 10 percent or less -- which is the case for the majority of existing homes in metropolitan markets -- Glickman "almost always" can persuade the lender to let a new buyer have an assumption. The rate may be bumped up from 8 percent to 11, 12 or 13 percent, and the payback term may be 10 to 20 years rather than 30. But the deal goes through.
When Glickman talks with lenders, he hits them with reality: Those 8 percent loans on their books could spill another 20 to 25 years of red ink if homeowners can't sell their houses.
By permitting assumptions with 3- to 4-point rate bump-ups, Glickman shows lenders how to improve their portfolio yields instantly. And by extending buyers additional credit beyond assumption -- through second mortgages or wraparound loans at 14 to 15 percent rates -- lenders can do even better.
Buyers between now and February should look at properties with a "price-financing" scale in mind as a negotiating tool. If a house comes with absolutely no financing possibilities that will cut your effective cost of money to 12 percent, then the price has to be cut to reflect your excessive costs.
The worse the financing -- the extreme being a conventional, new 30-year loan at market rates -- the lower the price you can afford to meet. (When you've got the rock-bottom price, see if you can obtain a renegotiable rate, three-year loan at a slightly below-market rate from an S&L, rather than take a long-term lock-in at 15 to 16 percent. That will at least give you the option of refinancing when rates enter their next cyclical decline.)
Whatever you do, try not to fall in love with houses in an economic climate like today's. Don't be afraid to walk out of a negotiation if you're not getting a deal on either financing or price. After all, what good is a buyer's market if you don't save money as a buyer?