Thank You, John Paulson

If any of you have not read reports about hedge fund investor and Wall Street prognosticator John Paulson's recent speech about the economy, I can summarize it this way: Buy real estate. He told listeners that, if they didn't own a house, they should run out and buy one. If they did own one, they should buy a second home. If they already had two, they should buy a third and loan their relatives money to buy homes as well. He called it the best time in 50 years to purchase real estate, mostly thanks to historically low interest rates.

Since we are used to seeing all the stages of a real estate cycle, we know that we are at the bottom, and hope that we may even be starting up. While sales fell badly in the third quarter, due in large part to the expiration of the tax credit, prices in our region only dropped 1 to 2%. That's far less than most people think prices are off, and shows that the underlying value is solid.

Now ask yourself how you will feel next year if you do not buy now, and prices, sales, and interest rates all go up in the intervening time period. If you feel that you have enough house and enough mortgage debt, even with the prices and rates, then you'll be fine. But will you be kicking yourself if that house you coveted is now $100,000 more, and rates are up to 6 or 7%? If so, then you know what you have to do. So, as Nike says, just do it!

Finally Some Helpful Press

There was a wonderful article in the Wall Street Journal this week, that actually listed ten reasons TO buy a home. As you can tell by the title, we have come to expect that every article will result in calls from clients who have decided not to go forward with a purchase. Therefore, we were thrilled to get some help from the WSJ.

You would not be surprised by most of the reasons, because you've heard them all before. There were a couple of arguments that were particularly good, however, in the way that they were phrased. One was the perennial issue of whether a buyer should buy before the market hits bottom. All real estate professionals know the answer to that--you cannot predict the bottom, so you should just get somewhere near it and not worry. The article, however, quoted a talking head as saying two years ago that prices had to fall another 17% to reach where they should be, and that the Case-Shiller Index in those two years showed prices down 18%. That's pretty close to the bottom.

The other points I really liked were really variations of the same theme---you get a better home when you buy. That's because better properties get sold and worse properties get rented, but it's also true because you can't (or won't) personalize a rental the way you can or would your own place. It's a version of what I've been saying--that you have to like where you live--but it gives some concrete reasons as to why buying does a better job of providing that.

Low mortgage rates, big inventory, fewer taxes, long-term growth--all of these ideas were listed as well. Let's hope that some of you take the plunge after reading the paper!

Housing and the Federal TARP money

People all want to refinance or take out a new mortgage at the bottom of the market. Well, I wasn't sure before, but, based on what I've learned about the government's stimulus program, the time to get a mortgage is NOW. It turns out that the TARP money being given to banks isn't free. In the same way that the first-time homebuyer's tax credit sounds as though you don't have to pay it back, the TARP money has been characterized as a bailout, leading us to think that the banks are being granted the funds. But we were wrong--they have to pay it back, with 5% interest for the first number of years, and 7% interest after that.

So, while I previously thought that interest rates would just keep being forced down until people bought real estate, I now think we're at--or even past--the rate bottom. If a bank has to use money that it's paying 5% for, how many loans can it make for less than that, or even for the same amount, without incurring losses? In our WP mortgage joint venture with Webster Bank, we've seen rates, which had been at 5% with no points for a 30-year fixed mortgage, start to creep up. That now makes sense to me, and it's a call to action.

As I've said before, what you pay as a mortgage rate will matter more on the margin than what you pay for the property, so, if you have the money to buy a new home, buy it now! By the time you realize that rates are heading up, they will be higher yet.