Mar 17, 2008
Sell or Hold? That’s The Question for Home Owners
A review of the advertisements released in MLS listings, FSBO category and flat-fee brokerage arrangements reveals lot of inside stories about the predicament of home owners.
The blogs and forums right from the economic and financial platforms to that of social activities carry vehement arguments and counter arguments of the housing crisis prevailing. A majority of them put the blame squarely on the government and the government sponsored agencies like Freddie Mac and Fannie Mae as the root-cause for today’s problems.
They go to argue that the housing prices are disproportionate to rents or salaries. They reason out that the rent for housing is just 3% of the purchase price annually whereas one has to pay a minimum of 6.5% towards borrowing money to buy a house. This is more than double of their outgo in financial terms.
Worse still the home owners have to pay 9% per year by way of maintenance, insurance and taxes to “own” the house, a staggering 3 times of what they have to pay for renting a house. The government is taking action for helping the home buyers on the one hand through Freddie Mac and Fannie Mae through fed rate cuts on mortgage interests. In the same breath they are also opening up grievance redressing machinery for home owners to avoid foreclosures. In reality, the bloggers argue, that no one has lost their house due to foreclosures actually. According to them all those home owners who borrowed heavily beyond their repaying capacity, during the boom years are the sufferers now.
In this context, they point out there were speculators in the real estate market who swarmed into home buying during the boom. Nearly 25% of the houses bought were for pure speculation to cash in on the rising prices. Banks happily lent what they wanted because they passed on the risk to Fannie Mae (which is actually the tax-payers) or to the buyers of mortgage-backed bonds in Wall Street.
Now that the market is sluggish with low prices for housing, home owners can do well to calculate the real position as where they are in such a market. They are advised to weigh the pros and cons of holding the property and rent it or sell it off now itself to scrape through with minimum loss. The net operating income by renting the property should divide the actual price of sale they can derive. This will give them a percentage of investment yield. If this is less than what the long-term treasury investments are offering (5.7%) it would be beneficial for choosing to sell the property through MLS listings, FSBO category or flat-fee brokerage listings.
