Though a real estate recovery is underway, home prices still aren't back to their pre-2007 levels in many neighborhoods. Even so, many young families worry it's already too late to buy that starter home in a nice suburb with good schools.
"Buyers hung around waiting for the right moment to get into the market. But that moment seemed to come and go in a heartbeat," says Karl Case, a home values expert and senior fellow at Harvard University's Joint Center for Housing Studies.
Not only are prices on the rise in many desirable areas, inventories are also tight. These dual factors make it doubly frustrating for frugal buyers who now must compete with others for coveted properties.
Along with rising housing prices, young families are already trying to cope with high living costs for other basics, from child care to food and gas. But Case says it's not too late for most young homebuyers to make a good property purchase.
Case says it's pointless for would-be homebuyers who missed the bottom of the market in their chosen area to focus on the past.
Rather than obsessing about not having bought at an earlier point in the cycle, Case advises first-time buyers to move forward and think strategically. Here are a few pointers:
-- Consider an "overpriced" home.
Young homebuyers (and even veteran buyers) can overlook an important fact about real estate: You can sometimes get the best deals on homes that were significantly overpriced at the outset.
Barry Nystedt, a real estate broker and former president of the National Association of Exclusive Buyer Agents (www.naeba.org), says the secret to shopping among overpriced properties is to be the first to know when price cuts occur.
"Sometimes people overprice because of ego, but mostly they do so because of ignorance of the market. Eventually, after their property has been sitting unsold for a lengthy period, they get worn down. That's when they drop their price and start to negotiate seriously," Nystedt says.
"Through the years, I've gotten some very good deals for clients after price reductions have occurred," Nystedt recalls.
-- Include out-of-style properties in your search.
First-time buyers may wish to consider a category of properties a notch above fixer-uppers: what agents call "cosmetically challenged" properties. These homes are well kept and the fundamentals, including electricity and plumbing, all work. But their owners have neglected the interior decor. Because of that, they're often sold below market value.
As Nystedt notes, many longtime owners of solid family houses never redo their tired, fraying, out-of-date interiors.
"But if the house has good bones and you get a favorable price on it, it will pay you to strip that old wallpaper, pull up the carpet and refinish the hardwood floors beneath," Nystedt says.
But he cautions that homebuyers should be careful to distinguish between outdated homes and those with serious underlying issues.
He urges anyone buying a home, especially money-conscious young families, to make their purchase conditional on a thorough home inspection to ensure the place doesn't have fundamental flaws such as structural problems. These are much more costly to fix than a dated living room.
-- Search for highly motivated sellers.
For home-sellers, time is money. People who must move quickly, perhaps due to job relocation or a marital breakup, are typically more willing to let their property go for a reasonable price than those who can hold out.
You needn't do anything unethical to find out what motivates the owners of a home that interests you. Often, the listing agent will answer direct questions about the sellers' motivations.
"The real estate business is based on relationships. Agents talk to each other, and your agent might hear from the listing agent that the owners of a property you like are eager for an immediate offer," Nystedt says.
He says owners who've accepted an out-of-state job transfer are usually the most willing to negotiate, particularly if their property is already vacant or has been taken over by a relocation company.
"'Relo' companies aren't emotional sellers. They'll often cut to the chase to sell the property as soon as possible," Nystedt says.
-- Exercise caution about taking a non-traditional mortgage.
It's no secret that with mortgage rates hovering around historic lows, most homebuyers are opting for a traditional 30-year fixed-rate mortgage. Still, some first-time purchasers facing an affordability pinch are now considering non-traditional mortgage alternatives, according to Dale Robyn Siegel, a veteran mortgage broker who heads her own firm.
Siegel, author of "The New Rules for Mortgages," says one budget-stretching alternative to a fixed-rate loan is a "hybrid" that guarantees a constant interest rate for 10 years before converting into an adjustable rate mortgage that changes annually.
"I wouldn't go with any hybrid that converts to an ARM after just five to seven years. Interest rates are bound to rise in the next few years, and you may wind up staying in your house longer than expected. The reality is that life could get in the way of your best-laid plans," Siegel says.
(To contact Ellen James Martin, email her at email@example.com.)