A few years ago, Frances Martinez Myers and her husband began searching for a retirement home to buy on Maryland's Eastern Shore. However, soaring home prices put a purchase out of reach. Ms. Myers, chair of the National Association of Hispanic Real Estate Professionals (NAHREP) and a savvy investor, decided to wait for prices to fall and kept searching as they declined.
Recently, Ms. Myers and her husband purchased a home for about $600,000 that had been priced in the mid-$700,000s just six months earlier. Real estate prices nationwide will continue to fall or remain flat before rebounding later this year, experts predict. That makes it a good time for Hispanic investors and first-time homebuyers to start shopping for deals, Ms. Myers says.
"As an investor, it's a good market as long as you don't want to flip immediately for profit. Hang onto the property for a few years and you will eventually be in great spot to sell for a profit," Ms. Myers advises. "For first-time home buyers, it's a good market because there is more inventory in the market than at any time in the last six or seven years. And the inventory is of a higher quality than when the market is running fast."
Speaking at a national home builders convention last month, David Berson, chief economist for Fannie Mae, said he expects that the home-price index will show a nationwide decline in values for 2007 – the first decline since the Office of Federal Housing Enterprise Oversight started keeping data in 1975.
But other experts predict that inventory will decline by the end of the year as demand rises, interest rates remain near record levels, and the economy stays healthy. As a result, the median new-home price will increase 3 percent by the end of 2007, and the median existing-home price will rise 1.5 percent, the National Association of Realtors predicts.
Hispanics will likely be significant players in the turnaround because they represent a pent-up demand for homes. "Market growth potential is there because of rapidly increasing earnings, and the rise in Hispanics entering college, immigrating to the U.S. and forming households," says Jose Menendez, Multicultural Markets director for Houston-based Stewart Title Company and a NAHREP board member.
Statistics illustrate the growth potential: The home ownership rate is 49.4 among Hispanics and 75 percent for Anglos, according to the NAHREP. Hispanics will account for up to 40 percent of first-time homebuyers over the next 20 years, according to the Harvard Joint Center for Housing Studies.
Home buying by Hispanics will continue to surge although they account for a disproportionate amount of foreclosures. Eight percent of Hispanic homeowners will face foreclosures over the next two years, compared to 4 percent of whites, according to a report by the Center for Responsible Lending, a Durham, N.C.-based research group. The biggest reason for the disparity: Hispanics are more likely to receive an adjustable-rate mortgage (ARM) with escalating interest rates and payment increases.
Real estate experts suggest the following strategies for investors, depending on their goals and local real estate market.
>> Buy homes in the growing foreclosure market and save 10 to 50 percent on the purchase price. About 20 percent of all subprime mortgages negotiated over the last two years will go into foreclosure, according to the Center for Responsible Lending's report. Forge relationships with lenders to get a heads up on foreclosures.
>> Look for good deals in moderate-income urban neighborhoods where there is a demand for homes and condos but a lack of supply. Example: The Canyon-Johnson Urban Fund – a joint venture between basketball great and entrepreneur Earvin "Magic" Johnson and Canyon Capital Realty Advisors – is building a 395-unit condo development in Miami's Little Havana community. Pre-construction prices start at about $240,000.
>> For truly savvy investors who know where to look, buying and flipping can still turn a profit of 10 percent to 20 percent in some communities in selected markets nationwide. For example, Michael Garcia, executive vice-president of real estate services provider Hispaniclending.com, recently bought and sold two homes in Phoenix valued between $150,000 and $250,000. He declined to disclose his profit. Research is the key, Mr. Garcia says.
>> Average small investors should avoid flipping. "If you own a home or two and want to buy another property, wait three to six months, and buy the property and rent it out until the market goes up," says Tino Diaz, president of Miami-based Vertex Mortgage Bankers. However, he warns, "Be extremely picky because there is still a risk that the value will decline some before it rises."
>> For first-time home buyers, Mr. Menendez offers this advice: "Don't get an ARM, even it you have to get a subprime loan. When I got married several years ago, all I could afford was a subprime loan. The contract didn't allow me to refinance for three years. I used the time to fix my credit. When the three years ended, I immediately refinanced."
SUNSHINE STATE DEALS
If real estate bellwether markets such as Florida are any indication, the worst will soon be over. In South Florida, home to the nation's most affluent population of Hispanics, they were a key part of the speculative investment buying that drove real estate prices up spectacularly over the last few years. Last year, single-family home sales dropped 21 percent in Miami-Dade County, according to the Florida Association of Realtors. Many investors are struggling to keep properties they purchased because they either can't sell them or would lose money by doing so.
Real estate insurance premiums are a big part of the problem. "Insurance on my house went from $2,000 to $8,000 from 2002 until now. It's like a huge tax and it shows no sign of letting up," Mr. Diaz says. Still, he is looking to buy a second home in South Florida as an investment. "Look for deals," he advises, "because the market will start swinging the other way soon."
In the Midwest, the fast growing Hispanic population is buying real estate outside of urban centers where they traditionally first settle. Alex Chaparro, president of Hudson Street Realty in Chicago and president of NAHREP Chicago, says, "There is still affordability in the Midwest. More Latinos are looking in rural areas up to 40 minutes outside the city like Waukegan, Aurora, and Elgin, where more of them are moving." During the boom, many Hispanics also purchased condos in upscale areas of Chicago. That trend is likely to continue as the real estate market strengthens, Mr. Chaparro says.
His advice to aspiring and novice real estate investors: "Develop a team of professionals – a realtor, lender and lawyers – who understand your real estate market. Formulate your desired outcome. As your equity grows, make more sophisticated decisions that you can afford."
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