With all the good economic news, why doesn’t the economy “feel” better?

We keep hearing that we are in a recovery from the ‘great recession’, yet it seems that the market is just a single media zinger away from locking up and shutting down for the third year in a row, perhaps from a sound bite that originates from China, the European debt crisis, or standstill on Capitol Hill.

Homes prices and mortgage rates are at sixty year lows. What’s more, at least locally and regionally a good number of people seem to believe the experts who say that prices have hit bottom, so their sense of risk has diminished and their potential for home investment is greater than it has been the last five years. In addition, people are marrying, having babies, divorcing, and having grandchildren, and keeping their jobs or landing better ones. This could be described as ‘pent up demand’ for household formation.

  • Home prices and mortgage rates are at sixty year lows
  • The recession has delayed household formation, resulting in “pent-up” demand for housing
  • Huge structural changes in the housing market have occurred since the recession
  • Move from buying a home principally as an investment to buying a home for shelter
  • Only thirteen states showed positive price appreciation last year
  • Counter intuitively, a large obstacle in our recovery is under-supply
  • Despite foreclosures and shadow inventory there is a shortage of well-located, well-priced properties, especially in Texas metros
  • 18,000+ developed lots in Austin, only half are spoken for. The other half isn’t desirable due to schools, financing, utilities, distance, etc. Over 150,000 entitled lots in Austin, 70,000 in Dallas in similar situations.
  • Undersupply in an oversupplied market – an uncomfortable paradox
  • Banks are still sitting on $1.7 trillion in bad commercial loans that haven’t been written down to market, making equity reluctant to lend on acquisition and development
  • “Land is like ice cream. The right amount is wonderful. Too much makes you sick.”

    Independence Title quarterly economic land briefing recap

  • High demand in Austin for well located commercial and community properties continue to drive occupancy and absorption
  • 22,000 planned rental units in Austin over the next two years, yet still not enough to support demand
  • The most in-demand communities in Austin have a dwindling supply of lots, with no substitute community in sight
  • “Sweet spot” in the residential market is between $200-$450k
  • Mark G I could not disagree more sgotnrly with answer that suggests an interest only loan. One of the great advantages of home ownership is the building of equity in your house. It’s like a savings plan that lets you use the investment (your house) while you’re doing it. She’s right, it’s probably not the last house you will buy, but an interest only loan does nothing to help you prepare to buy the next one. By creating equity in this house, you will have more available money to buy the next one, and, if things go as I’m sure you hope, your next house will probably cost more than this one. All the more reason to build equity to have more cash to climb the property ladder.The other thing an interest only loan does is encourage people to buy more house than they should. DON’T FALL INTO THAT TRAP. Buy within your means, put as much money down as feasible, and go with a fixed rate mortgage if you can. An ARM is cheaper initially, but can end up being much more expensive. So if you go that way be very careful. With fixed rate interest rates as low as they are now, every prudent person should try to go that way. To compare rates on a loan, look at the APR, not the interest rate they use to advertise the loan. The APR gives a much more accurate picture of the true cost of the loan. Pick out several that look good. A good resource for this is Bankrate.com Then, call the people who offer the loans you’ve selected, prequalify with them to see what rate you actually qualify for based on your circumstances (credit, income, debt) and ask for a sample good faith estimate. That will give you all the costs of the loan, including closing costs. Do this with several lenders for the same loan amount so you can easily compare the products. Now you will know: how much house you can buy, what upfront costs you will have, your monthly payment (or close to it) and closing costs. Those closing costs can be paid by the seller, by the way, so you can use that when you offer to buy the property.The problem with the logic of letting appreciation take care of creating equity in a home is that houses don’t always appreciate. Here in Florida where I live, the area is experiencing one foreclosure after another from people who counted on that trend continuing forever. Yes, there are many stategies for investing in real estae, and some of them involve interest only loans. I, too, have used such a stategy with investment properties. But, unless you’re knowledgable about such things, simpler is better. The idea of owning a home free and clear still would not be a bad thing. Even in the case that that never happens, building equity in a property still makes sense. You can do that with an interest only loan by paying against the principal yourself, but that requires more self-discipline than most people frankly have. Otherewise, by definition, an interest only loan means that all you are doing in making your monthly mortgage payment is servicing the debt on the house. You never pay it off or even reduce the amount you owe on it. To say that an interest only loan does not change the amount of time it takes to pay off the house defies mathematics. I’ll not dispute the idea that interest only financing,and various other strategies can be effective. But for most people who simply are trying to buy a primary residence, especially inexperienced people, they are simply creating additional risk that is unnecessary.September 30, 2011 | 9:20 am

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