This is even more true when one is purchasing a second home or a vacation property. There is no immediate need to purchase - no issues of kids getting in a district for the fall, finding a location close to work, or settling into a dream community. For most people the vacation home dilemma is difference between renting someone else condo or purchasing their own. This is where knife catching comes in. Here is the definition -
Knife Catching - A buyer during the decline attempting to time the bottom and catch a price reversal. Since prices generally decline for long periods in a real estate slump, there are many buyers who buy too early and pay too much thus causing financial injury.
After reading the front page article from The Record's Real Estate section titled Want a cut-rate Shore condo? there will probably a new group of knife catchers heading to Wildwood. Lets take a look at a few snippets -
So many people from the New York Metro area want a second shore home. It seems like everyone who does not have one knows someone who does - either themselves or a family member. After spending a week or two in the summer it seems like it would be such a wonderful place to own so one can visit year round. And with the money we throw at our summer rentals it seems like a decent investment.
The Wildwoods have about 1,000 condos for sale, many of them no more than a few years old. At the current sales pace, it would take from 20 months (North Wildwood) to 27 months (Wildwood) to sell all the housing inventory now on the market, according to the Otteau Valuation Group of East Brunswick. That compares with a statewide average of 10.8 months' worth of housing inventory.
"A lot of people who really had no business buying to begin with thought that before they had to make a mortgage payment, they'd be able to flip it," said Edward Szubski, a real estate agent with Century 21 Alliance.
For many buyers, it didn't work out that way. Szubski, for example, is advertising a three-year-old condo with the line: "Buy for less than the current owner paid." In 2005, the seller paid $325,000 for the new, three-bedroom, two-bath unit; now it is on the market for $249,900 - a 23 percent drop.
Many of the people who bought at or near the peak of the market are trying to cover some of their costs with summer rentals, but others just can't make the finances work. And they can't just sell, because they often owe more on their mortgages than the property is worth.
"You have people who are clearly overextended," Barnes said. "They hoped to get better rents or that they'd be able to sell the place. They start depleting their savings. They had enough to carry it for a little bit, but then it gets to the point that they can't carry it anymore."
Between people dreaming of their summer beach house and flippers looking for a quick turn-around prices steadily rose along the Shore. With easy financing with novel new mortgages (option arms for example) it was very easy to take on this additional expense. But obviously many were not ready.
The current crop of buyers will probably be knife catchers. Trying to get a Wildwood condo at a good price on the way down. Hoping that this is the time to get their dream vacation home at a bargain basement price. But there is a reason it is called knife catching - it can be cause serious financial injury.