The Federal Reserve Board’s looming shift in policy could escalate 30 year fixed mortgages to 6% or higher. Rates currently are enjoying rock-bottom levels at 5.02%. Last week’s stimulative decision to extend the $8,000 first-time home buyers tax credit and innovative creation of a $6,500 credit for current homeowners could be neutralized with a sharp increase in interest rates.

A $300,000 mortgage at 5.02% today for example works out to be about $1,614 a month. On the other hand, at 6% the mortgage amount would have to be $270,000 to maintain the monthly payment at $1,614. It is clearly in your best interest to buy or refinance now with so many unbelievable deals and selection at 2002 housing prices plus all time low interest rates.

Now is a great time to buy Hilton Head Island Real Estate!

I would hate for us to get to the point where we are in a “cash only” real estate market.

What would happen if we were?  Obviously, supply and demand is important, but availability of capital is also important because they are connected hand in hand. 

We are seeing in our homesite market that very few banks are loaning money.  Therefore, we are in what we call a “cash only market” meaning that the only buyers we have are the people willing to pay cash. 

In this type market, we have very few sales which means an increase in inventory because we have more properties coming on the market than we have leaving the market.  This also means that buyers are buying from a position of strength meaning that they know the market is slow and they know there is not a lot of capital available so they are holding firm on their prices and sellers are giving in to their price.

I really don’t understand what banks are thinking – they have gone from one end of the spectrum to the other.  Three years ago they were offering credit to anyone who wanted it – you could get 100% financing on loans.  Now, they are offering no financing at all.  It does not make sense to me.  Maybe somewhere in the middle is where we need to be and hopefully we get there soon.

One of the major influences on the Hilton Head Island real estate market is availability of capital through loans. 

We have recently seen a situation where most banks are not making lot loans.  The few banks that are making these loans are requiring that you build within a year and use them for the construction loan. 

In other words, if you want to buy a single family lot, you either have to follow this requirement or pay cash.

In this type of environment, it has a negative effect on sales.  Since most people do not want to pay cash they do not buy at all.  Their thinking is – we don’t need the lot until we retire so we will just wait until we retire to buy a lot and build.  This helps explain why single family lot sales were down 92% in 2008 compared to a 10 year average.  It is hard to believe that any commodity could drop that much, but when your source of purchasing dries up I think one could understand why that would happen.

It is also true in homes and villas.  An agent in my office has someone who wanted to buy an oceanfront house and they wanted to put down $1 million.  The bank required that they put down $2 million and they did not want to put that much down because it would take most of their available cash that they had.  Therefore, the deal did not go through whereas a couple of years ago the person could have bought the same property with $500,000 down. 

 The availability of capital has a huge effect on the real estate market.   When there is not much capital available, less sales occur and prices drop because of the simple economics of supply and demand.