As you may have read, the US Government stopped purchasing mortgage backed securities the end of March 31st. As a result, interest rates have increased about .5% the past 7-10 days. What does this mean for future buyers, tenants, and investors?
As long as our unemployment rate remains high, we expect house values to remain stagnant if not drop slightly this year. There will be more pressure on higher priced properties than homes priced below $200,000. Lower priced homes will be more resilient and better hold their values.
Interest rates are still very low. This is a great time for investors to pull trigger and find a cash flow rental property. We just closed a home earlier this year below $100,000, and it generated a monthly cash flow over $250. Seller was a landlord and was out of cash and very motivated to sell home. We found an investor who purchased home and saved home from going into foreclosure. Both seller and investor were happy with the transaction.
Now is the time to take advantage of short sales, high foreclosures and low interest rates. Investors must put down at least 20% down to purchase a non occupied rental property. Putting down an additional 5% down (25% instead of 20%) will yield a .5% better interest rate. Multi family unit properties require 25% down. Low interest rates help increase cash flow much more than a lower sales price. A one percent increase in interest rate can make a potential positive cash flow property become negative. Purchasing a home slightly below market will not have as large an impact as a low interest rate.
Owner occupant buyers with good credit scores can still put down as little as 3.5% for an FHA loan or 5% for a conventional mortgage. In order to get the best rate available, borrowers must have a minimum 740 fico score. For more details on qualifying for mortgage, click here.
If you have not refinanced your rental property or primary residence, there still may be time to take advantage of lower rates. Rates have increased but are still below 6% for investment property and low 5% range for owner occupant buyers. If your current rate is 1% higher, you may be able to take advantage of the lower rates before they increase more. Call our office at 512-257-9836 for any questions.
Surprisingly, we are not seeing a surge of sales activity with the $8,000 first time buyer tax credit and the $6,500 repeat buyer tax credit. There was a huge surge last year in the October/November time frame when the first round of tax credit for first time buyer expired November 30, 2009. Last year, October and November sales surged over 20% in the Austin and surrounding areas. According to recent Austin MLS data, Austin real estate sales were up only a few percentage points in January 2010 compared to January 2009. I expected to see a larger increase, especially since the first quarter of 2009 dropped about 20% from 2008 sales volume levels.
We anticipated many tenants breaking their lease to take advantage of the tax credits which expire April 30, 2010. We had over 40 properties come up for renewal in February-April time frame. Only about 2-3 tenants vacated to take advantage of the first time buyer tax credit and purchase a home. Other tenants downsized or were looking for larger homes. We lost several tenants in homes we manage who wanted to stay in a property we manage, but we did not have any active four bedroom homes in our March and April portfolio. Instead, our leasing agents helped them find other properties.
Rental inventory has remained very low the past 60 days. We listed 7 homes for lease this month and received applications on each property within 10 days. We leased some homes without even listing home in MLS and received multiple applications for a few of the properties. Inventory has remained low because many investors or landlords are selling properties, some of which are sold in a short sale transaction or even foreclosure. Many landlords are dumping homes with negative cash flow and negative equity. Because it is much harder for investors to qualify for a non owner occupant property, most of these rental properties are sold to owner occupant buyers. This permanently removes that home as a rental property and reduces the rental inventory.
As the pool of qualified buyers shrinks, unemployment rate remains high, and tax credits go away, we expect to lease properties quickly and for demand to remain high. It is more difficult to raise rents on higher end properties, but I am hoping to see rents below $1,200 to increase slightly over the next year. Investors who hold on to their property long term will come out ahead as the supply for rental properties remain low and demand is high.
If you have any questions, please call us at 512-257-9836. Our office provides sales, leasing, property management, and mortgage services.
