Feature Story

Navigating the Real Estate Market
By James Meyer and Paul Zapala

We have all seen or heard the news about the nation’s real estate and banking markets. But what does all of it mean for the real estate market here in the Palm Springs area?
Because Palm Springs is a unique resort area, our market is very different from others in Riverside County and certainly very different from Los Angeles, San Diego and Orange counties.  We are always asked how what is happening around the country affects our market.
Who in today’s market is buying property in Palm Springs? Buyers are still vacation homeowners, people moving full-time to the desert and those investing in rental properties. What many of them now have in common is having sat on the sidelines the last few years waiting for this current market correction to make their move.  Affordability is back and inventories are high, which make for a lot of choices fitting nearly any need.
For those who already own property, “buying up” in this market may make good financial sense. “Buying up” is selling a lesser-priced property and rolling those funds into buying a higher-priced property: selling a condo and buying a house, for example. Some may think that it does not make sense to sell a property at the lower price than the market may currently demand. But the reality is that that same lower price will apply to the purchase property and this invested money will most likely have more room for appreciation in the future. Another benefit to “buying up” is a low property tax on the new purchase since property taxes are based on the lower sale price.
Steady and low interest rates make loans very attractive and there are also some tax benefits for certain buyers. First-time home buyers can have a special advantage with certain tax benefits (consult a tax advisor for the latest in benefits) as well as good loan programs through the Federal Housing Administration (FHA) requiring little money down. The Veteran’s Administration (VA) has loans specifically for veterans that also have low down payment requirements.
If these categories do not fit you, then rest assured that traditional lenders are also lending money in spite of any contrary impressions from the media. The only difference now is that lenders are rightfully more cautious, requiring full documentation and down payment funds.  The “no docs,” “no down payment” and “interest only” loans are very rare, if at all available, and if so, are only for a very specific audience.
Who in today’s market is selling property in Palm Springs? In light of the current economic and credit situation, the profile of a property seller is varied. 
Homeowners who are either moving up to a bigger home, downsizing to a smaller home or are leaving the area are called traditional sellers. These homes are usually owner-occupied or are sometimes a vacation residence. Others are investment properties that the seller has decided to divest.
Another group of people may find themselves in a financial situation where they have to sell their property and find out that it is worth less than what is actually owed against it.  This is called a short sale. In simple terms, the homeowner tries to negotiate with their bank to accept less than what they owe on the mortgage when they sell the home.  “Short” because the homeowner is paying off their loan short of the entire balance. There are, of course, personal credit and tax implications with this scenario. A tax advisor can educate you on the latest in legislation and how it affects a short sale.
Finally, banks that acquire property through the foreclosure process need to sell these properties. These are called bank-owned or REO (Real Estate Owned). REO homes are usually priced at or below market value in order to quickly move these assets off the bank’s books.
Is now a good time to invest in the Palm Springs real estate market? And, if so, what advice is there? The answer is very different based on your situation. As for the market, selection is high, interest rates are low and we have not seen this level of affordability in many years. Some condominiums in Palm Springs are selling under $100,000 and finding a single family residence pool home under $300,000 is not out of the ordinary. Conforming loan limits are currently at $417,000. In simple terms, this means that any loan under that amount will have the best terms and interest rates. 
Because of the high level of affordability in our market, it is a great time for a first-time homebuyer to take the step into buying. The $8,000 tax credit is a great incentive. Basic requirements include: the home must be purchased in 2009, is a principal residence and the buyer has not owned a home for the last three years.
Low down payment buyers interested in properties that qualify can look to the low down payment programs offered by the FHA and VA. But be aware: The FHA and VA only lend money on homes that are “habitable.” So, for example, a very distressed REO property may not be an option because it might require work before it can be lived in. Buying a traditional sale or short sale would be a surer bet with this type of financing as typically the homeowners are currently living in the property.
For that buyer looking for a “fixer,” this is a great time, as they may be able to get a great deal on any type of sale. But, because REO homes typically sit vacant and uncared for for up to several months during the foreclosure process, REO listings may be the best match for the value. Lighting and plumbing fixtures may be missing, the yard may be overgrown, flooring may need replacing and painting is a pretty sure bet, but there is the potential of getting an REO property for up to 10-15 percent less than a traditional sale.
An investor buyer can be matched with any type of listing. It is important to take into consideration the level of capital available after the sale if an investor is going to consider a foreclosed property, as there most likely will be repairs that must be made in order to make the property ready for rental. But, most importantly, the numbers need to make sense for the investment. Also, there are questions that come into play that focus on the goal of the investment: Is this intended to be a year round rental (typically rented without furniture)? Will it be positioned as a vacation rental (in which case, it will need to be turn-key furnished, will rent for more and typically for only select months, but leaves it to be enjoyed by the buyer at other times)? Will the property be managed by a property management company or by the owner (a condo purchase might make it easier to self-manage)? Knowing these answers first will help direct your initial search.
As with every low swing in the real estate market, people who thought they might never own property in Palm Springs have that opportunity once again. People who waited on the sidelines during the height of the market also see opportunity. Whether for your own use or for building a real estate investment portfolio, now may be the time for you to make a move in Palm Springs’ topsy-turvy real estate market.

Paul Zapala and James Meyer are the Zapala/Meyer Team, local Realtors servicing Palm Springs and the Coachella Valley. You may visit them online at: PalmSpringsGetaway.com or by emailing Info@PalmSpringsGetaway.com