1/2 Point, & Contrarian Investing

I've had conversations with several clients recently who are concerned about the equity markets and how that is affecting home loans and real estate in general. While I understand their concerns with what is occurring in the mortgage market. On the flip side of the argument, there are others who are "on the fence" as well, and may be sitting the rest of 2007 out. That causes a reduction in demand, which the current sellers definitely are feeling. As a result their level of motivation and willingness to negotiate is increasing dramatically. With the Fed's 1/2 point rate cut, that is going to have some positive effects on consumer confidence, though the trickle down affect to adjustable rate mortgages and the like, may take a bit of time. Often times contrarian investing can achieve the best long-term results. Buying, when others are selling and other consumers may be hesitant to step in, as longs you are planning to hold 3+ years, ensures that you purchase at a time when sellers are motivated and you can achieve a great price. Waiting 6-18 months, may just put you in the pool with many of the other out-of-town buyers and you may try to come back in when sellers are much less motivated, and you are competing with the flood of buyers back into the market.

And that is the best case scenario in my mind. If rates go up in the next year or two, and prices soften further (I strongly doubt they will decrease more than 5%--when my gut feeling is that we are going to see more of a level market with no movement each way), you could be in a situation where your monthly payment is significantly more, even if you paid slightly less. When I looked at the actual numbers from some of these prices decrease, but mortgage rates increase scenario, it was a real eye-opener for me, as well as for many of my clients.

My recommendation is that if you want in on the Santa Barbara real estate market, find the right property now, negotiate hard, and purchase it for a medium to long term hold.