Now Is a Good Time to Buy a Home
Today, with the real estate market slowing in many parts of the country, all the market fundamentals show that buyers are now in the driver's seat. Consider the facts: prices are competitive, interest rates are very affordable, there are plenty of homes in all price ranges to choose from and sellers are ready to bargain.
So why are many prospective home buyers having second thoughts?
It appears they are letting emotions overtake common sense. For instance, many home owners who are looking to sell and trade up to a better house are hesitating because they have seen the value of their current home drop from peak levels.
"If my neighbor sold his house for $250,000 six months ago, why should I have to settle for $225,000 today?" But waiting out the market to recoup a $25,000 "loss" could prove to be a poor decision.
While the value of the buyer's house may have fallen, that so-called loss has probably already been more than offset by a reduction in the price of the home he is thinking about buying. Furthermore, if he waits too long, he may lose out on the price advantage that currently exists.
First-time home buyers who are choosing to "play it safe" and keep renting are essentially postponing the opportunity to build household wealth. Also, in the current marketplace, with rental vacancy rates tightening, they can probably expect to see a healthy increase in the rent they pay. No one can accurately predict the peaks and valleys of the housing market. If you sit on the fence and wait for the absolute best deal, you could end up literally waiting for years, and in the meantime miss out on the opportunity to become a homeowner while prices are moderating.
Not to be overlooked are the tremendous tax benefits received by homeowners as they accumulate equity in their homes. History shows that buying a home is one of the very best financial investments available to a typical household, and a relatively small downpayment enables the buyer to see appreciation on the entire value of the property.
Though local housing markets periodically adjust according to overall economic conditions, over the long term real estate has consistently appreciated. On a national level, home appreciation has historically risen 5-6 percent annually. At that rate the value of a home doubles every 13 years. Not only is homeownership a stepping stone to a future of financial security, it provides a permanent place to call home and enormous personal satisfaction.
In today's housing market, the real risk is in waiting to buy a home. We know that interest rates are low today. We know that home prices are leveling off and even declining in some markets. We know that there are plenty of homes on the market to choose from. We know that sellers are willing to bargain. And we know that builders are willing to offer attractive incentives to get your business.
Spring TX Real Estate: Market Report January 2009
If you think you are seeing fewer “For Sale” signs, you are right. In comparison to a year ago, the Spring, TX Real Estate Market has seen a 30% drop in homes on the market and a 28% drop in new listings taken. Our real estate market now has the lowest level of single-family homes on the market since 2007.
Our months of inventory stands at 5.4 months which is almost a full month less than the 6.3 months of inventory in January 2008. In comparison to South Florida’s 28 months of inventory or Chicago Illinois’s 15 months of inventory, the Spring Texas real estate market has an extremely low level of inventory.
The battles currently taking place in the House and the Senate over the National Economic Stimulus Package will hopefully reduce the swelling housing inventory and depreciating home prices in cities throughout the U.S. But with only 5.4 months of inventory in Spring Texas, we do not need an economic stimulus package to reduce inventory levels.
Our real estate market will benefit from the national stimulus package because it will provide home buyers with an additional incentive beyond historically low interest rates to purchase a home. What we need now is the return of consumer confidence.
If you are thinking about selling your home, now is the time. Home buyers will be back out in force with the passing of the national economic stimulus package. Low inventory levels means less competition making it easier for your home to out shine the other homes on the market.
Affordability returns to housing, and buyers have loads of negotiating power
People are afraid to buy a home in times like these, with the economy tanking and home prices continuing to fall. But if you're brave enough to stray from the herd, you might be in for the home-buying opportunity of a lifetime.
Ask for price reductions, improvements, closing costs -- whatever -- and the seller, desperately trying to get a contract, is very likely to work with you, said Jay Papasan, one of the authors of the book "Your First Home." When the market starts improving, your negotiating power starts to diminish, he added.
If you're qualified to buy a home now, the purchase makes sense for your situation and you're prepared to live in that home for at least five years, there are five reasons why you may be headed for a great deal:
1. Affordability is better than ever
According to the National Association of Realtors' housing affordability index, homes were more affordable in December than at any other point since the group started the index in 1970. The affordability index is a measure of the relationship between home prices, mortgage interest rates and family income.
A report from Moody's Economy.com, released this week, predicted that house prices will stabilize by the end of this year, even though the Case-Shiller house price index will fall another 11% from the fourth quarter of 2008. By the end of the real-estate downturn, prices will have fallen by double digits, from peak to trough, in almost 62% of the nation's 381 metro areas, according to the report. In 10% of the areas, declines will be more than 30%.
Not all markets have experienced huge drops, however, so it's wise to take a look at how far prices have fallen in your area. The Office of Federal Housing Enterprise Oversight's Web site has a house price calculator that can help. Visit the calculator.
2. You have a large inventory to choose from
In many places it is taking months to sell a home, creating loads of inventory -- from new homes to existing homes to foreclosures. There was a 12.9-month supply of inventory in December given that month's sales pace, according to NAR.
A large selection gives buyers more choices and drives down prices. And home sellers have gotten the picture.
It's fair to say that home sellers have become "increasingly desperate," Papasan said. "People who have had for-sale signs in the yard for six months are starting to become in tune with the reality of the situation," he said. Buyers can take advantage.
But if you put off a purchase until inventory shrinks substantially, you might not get as good a price, said Eddie Fadel, author of the book "Don't Rent, Buy!" And be forewarned: It's nearly impossible to time the exact bottom of the housing market and even if you do there's no guarantee you'll make a killing.
"You buy for quality of life... don't buy on speculation," said Duane Andrews, CEO of Clear Capital. "I wouldn't buy a home expecting the housing market to rebound quickly in the next 10 years," he said, adding that he expects moderate gains in values when the turnaround does happen.
Historically, real estate appreciates about 5% a year over the long term, said Nancy Flint-Budde, a Salem, N.Y.-based certified financial planner. But as the country crawls out of a recession, many markets probably won't see huge home-price gains any time soon.
3. Builders are offering big discounts
Home builders are getting even more aggressive with their pricing.
In fact, Fadel recommends looking at completed new homes first because builders are offering such steep discounts. Plus, you'd have a warranty not only on the home itself, but also on the home's appliances, he said.
"[Builders] want to save their credit, save their brand, save their reputation and clear out inventory," he said. "They can go buy cheap land today with that cash."
His advice: Walk in with a preapproval for a mortgage, make an offer, then walk away without making a deal if you have to. Chances are, a builder will call back and reconsider that offer rather than let a potential buyer get away.
4. Mortgage rates are historically low
It's not just the price of the home that will affect affordability; mortgage terms will also affect your monthly payments. These days, rates are very attractive for conforming loans, those that can be purchased by mortgage agencies Fannie Mae and Freddie Mac. (The current limit is $417,000, although that can rise as high as $625,500 in high-cost markets.)
Earlier this year, rates on the popular 30-year fixed-rate mortgage hit a level not seen in decades, and rates have stayed relatively near that low for weeks. This week, the 30-year fixed-rate mortgage averaged 5.25%, according to Freddie Mac's weekly mortgage survey.
More mortgage help could also be on the way. Last week, President Obama said that his new economic plan, which Treasury Secretary Timothy Geithner is set to unveil Monday, would help lower the cost of mortgages for home buyers, although he did not give specifics.
But low rates don't mean lenders are handing out mortgages easily. You'll need good credit, a substantial down payment and a willingness to document your income in order to qualify for those great rates, if you can qualify at all.
5. You can get a federal tax credit
There's currently a federal credit of up to $7,500 for home buyers who haven't owned a home in at least three years. The credit needs to be paid back, although the repayment feature is removed in the economic stimulus plan that passed in the House of Representatives.
That extra cash will come in handy: The average first-time home buyer spends about $6,000 in the first six months of owning a home, said Flint-Budde.
The National Home Builders Association is pushing for more help for home buyers, including an even bigger tax credit -- the Senate in its version of the economic stimulus bill is proposing a $15,000 credit. And both NAHB and the National Association of Realtors want the incentive to help all buyers, not only those who are becoming homeowners for the first time.
Waiting for further federal developments, however, might sap a buyer's negotiating power, as more people get back into the market and competition returns, Fadel said.
"The more Washington gives, demand will increase," he said.
Should I List My Home Now or Wait Until Spring?
I received a call yesterday from a consumer who said "Jennifer, I know it is not a great time to sell. Should I put my properties up now or wait until spring?" . What is interesting is that I have found myself answering this question frequently and I have been seeing the same question on Trulia Voices and Zillow discussions. So, I figured it made sense to write about it as it relates to the Houston real estate market.
The first part of the answer depends on a seller's personal goals. If a seller has no place to go or plans on purchasing in the future or there are other external factors that pushes their timeline out it might make sense to wait until those answers are figured out and there is less uncertainty. This is the case for any seller at any time of the year. For the seller that called me yesterday, she has several properties to sell, one of which is her primary occupancy, two that are investment properties. She already plans on renting a place temporarily if her property sells before she relocates to Florida. So what should she do? List now or wait until spring?
Well, to me the answer is obvious. List now !!! There are six main advantages for a seller to list now in February instead of waiting until spring:
1. Inventory - In the spring, how many other sellers will have ended up doing the same strategy? They may have been waiting a year or so until the market got better or perhaps just figured it was the best time to list their property. So come March, April and May, there will be that much more competition to potentially compete with! By listing now, you avoid all that potential competition.
2. Motivated Buyers- Often many buyers will just wait until spring to start their search as well. They will just be beginning the procoess. Believe me the buyers that are out house hunting during the first quarter of the year are serious and motivated. By listing now, you will potentially get one of these buyers to write a deal on your property!
3. Mortgage Rates - The mortgage rates right now are at 3 year lows ! The average 30 year mortgage is in the mid 5s ! This is actually causing an uptick in buyer traffic and activity. If you list now, you will catch this wave of increased buyers shopping for houses since mortgage rates are so low.
4. Buyers confidence - Further, buyer confidence is starting to shift which is also increasing buyer traffic. Another cause for increase traffic is for a buyer to take advantage of the $7,500 first time homebuyer tax credit which expires in the middle of 2009. A buyer has to settle on their property before that timeframe. By listing now, you are taking advantage of this trend of increased buyer traffic.
5. Accomplish your goals now - When it is all said and done, wouldn't you rather have your house sold by March and April and moving on with your life than potentially just listing your house at that point in time. I love it when we accomplish our goals ahead of schedule - it is a great feeling. By listing now, you are positioning yourself to accomplish your goals sooner than later.
6. Reverse Fear - Lastly, not to buy into the media's doom and gloom, but there is always risk that the housing markets could deteriorate more instead of picking up by the middle of 2009. In addition, the reality of the market getting that much better in a short period of time is remote. I doubt that just by waiting until spring, a sales price could be higher by 10 percent. In fact, it could even be a little worse if you think the economy is going to deteriorate as the unemployment rate continues to skyrocket. By listing now, you avoid that extra layer of uncertainty.
What is your opinion ?
As a consumer, will you list now or wait until spring? As an agent, what will your answer be when asked this question? Also what additional benefits are there to list now versus waiting until spring?