Buying Advice

Why Suze Orman Is Misguided in Her Advice to Delay Buying a Home

Last week, financial guru Suze Orman stated she would not recommend buying a home anytime soon. Ms. Orman is an educated financial consultant, but she is not a real estate expert and misses the mark on this topic.

In case you didn’t see it, her July 5th Facebook post stated she would “absolutely wait until September, October, November of this year, before I bought a home.” That is fine, and is her choice, but the rationale for the decision does not hold up. The fact that many readers accept her advice and explanation is what has prompted me to blog about this.

There are several areas where her logic is faulty.

Foreclosures Are Likely

She assumes that there will be foreclosures due to the end of mortgage deferments and the end of federal unemployment assistance. These programs were adopted to AVOID foreclosures and it is unlikely that on August 31 the federally backed mortgage lenders are going to initiate foreclosure proceedings. Banks don’t WANT to own homes. The CFPB (Consumer Financial Protection Bureau) ensures your right to request forbearance for 180 and possibly 360 days. If your loan is not federally backed, you may still have options through the loan servicer or your state.

Aside from the forbearance issue, current loans have been made to more appropriate borrowers. In years leading up to 2007, loans were issued with essentially no underwriting. ANYONE could get a loan whether they could afford the home or not. Better underwriting in recent years has provided a lower risk of default on loans.

Equity – Your Secret Savings

Americans have a large amount of equity in their homes, which gives them options. This is NOTHING like 2007/2008 because most homeowners are not “upside-down” in their mortgages. In fact, almost 60% of all homeowners have at least 60% equity with an average of $177,000 per home (CoreLogic). 77% of Americans in forbearance have at least 20% in equity in their homes. 90% have at least 10% equity in their home. Only 1% have negative equity (Black Knight). If an owner can no longer afford to keep their home, they are not going to let it go into foreclosure, they are going to SELL it.

Property Values

If somewhere down the line a home goes into foreclosure, the bank is not going to sell the home for half its market value. The example of your neighbor’s $300,000 home selling for $150,000 does not make sense. It may sell for slightly under market value, but the bank will not give it away.

Regarding the effect on your property value, foreclosures are not considered a normal sale condition unless they sell at market value. A distressed sale doesn’t weigh in the same as a sale between a normally motivated buyer and seller. Professional real estate advisors and appraisers know this. Just because the example foreclosure sold for a ridiculous price, it doesn’t mean that your home is now worth that amount.

The Importance of a Specialist

I am not trying to insult Ms. Orman, because she is qualified in financial matters beyond my capabilities, and I respect that. I do have concerns when her reasons for recommending holding off the purchase of a home are incongruous with general real estate principles. If an individual decides this is not a good time to move forward on a home for more relevant reasons, that is to be honored. Perhaps there is a question of job security or serious health issues. Any decent real estate agent will support the decision of their client and be there for them.

This is an example of how much is not known or understood about what is going on in the world and how it relates to the real estate market. If you have questions about this topic or real estate in general, please don’t hesitate to reach out to me or your favorite Realtor.

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July 16, 2020

I would agree with you, here on Kauai houses are selling right and left, I’m sure most of them sight unseen due to the travel restrictions. My house, which I bought 2 years ago, has appreciated $75,000 and is still going up, which is faster appreciation than any previous house I owned.

Lisa Velasquez

July 16, 2020

> Mahalo Paul. Great to hear that your Kauai home is also doing well as an investment!
Here on the Big Island home prices are holding or increasing too.

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