There’s abundant evidence the real estate market is now going through massive change -- a reality acknowledged by leading housing experts.
“We’re witnessing a housing recession in terms of declining home sales and home building,” says Lawrence Yun, chief economist for the National Association of Realtors (nar.realtor).
But, as Yun notes, not all current real estate market trends are favorable for potential buyers. That’s because the inventory of available homes remains tight, and prices are lingering in the unaffordable range.
“Nearly 40% of homes are still commanding the full list price,” Yun notes.
Even so, many wannabe homeowners are breathing a sigh of relief because at least there are now fewer ferocious bidding wars.
“I wouldn’t say it’s a buyer’s market. But we’re not seeing the crazy 15 to 20 offers for a house that we saw last year. At most, we’re seeing two or three offers,” says Rich Harty, a Chicago-area real estate broker who works solely with purchasers.
These days, potential buyers seem to fall into two groups. One is excited at the idea of making a first home purchase in the current market and has no intention of backing off. The other is also anxious to buy, but more fearful of overpaying.
“For folks who really want to buy, I see no point in sitting out the current market and potentially missing the chance for that ‘perfect fit’ house,” says Harty, a past president of the National Association of Exclusive Buyer Agents (naeba.org).
“Whether you’re more attracted to buying in this changing market or repulsed by it has a lot to do with your personality type,” says Eric Tyson, a personal finance expert and author of “Let’s Get Real About Money!”
Renters who are eager to buy are typically optimists, while those waiting on the sidelines are often pessimistic about the economy and the potential for near-term opportunities in the housing sector.
After they’ve analyzed the overall situation, however, Tyson says even pessimists usually see the positives in buying a well-chosen property now rather than continuing to rent indefinitely.
“Renting year after year has its own risks. Obviously, rental costs could continue to rise substantially in the years ahead. And in the future, those who keep renting will be precluded from the kind of home value appreciation homeowners have enjoyed through the decades,” Tyson says.
There’s no such thing as a risk-free home purchase. However, you can improve your odds of a successful outcome if you think strategically. Here are a few pointers:
-- Conduct some economic research of your own.
As good as they are, national real estate forecasts are of less value to buyers than is information that helps them assess the area where they’d like to live.
To locate the parts of your metropolitan area that have the best prospects for appreciation, start with a regional map. On this, pinpoint major employers, such as corporate headquarters and military bases, where jobs are expanding. Locate communities with top public schools. Also, identify areas served by popular public transit lines, including light rail systems.
-- Think through your “personal economy” before deciding what to buy.
Would buying a well-priced home in a strong neighborhood be a good financial bet for your household if your monthly mortgage payments are more than you can afford? Absolutely not, Tyson says.
Despite tight mortgage lending standards, he says it’s still possible for many buyers to qualify for a larger mortgage than their finances warrant, thereby placing them at risk of a future default. That’s because your lender knows less about your financial obligations and spending habits than do you.
“A lot of your decision on how expensive a house to buy should hinge on your personal financial situation and job prospects,” Tyson says.
Before committing to any purchase, it’s always wise to review your budget and assess your level of employment security. Despite the country’s low unemployment rate, is your current job at risk? Do you have easily marketable skills that would allow you to quickly get another job if you had to?
-- Request statistics on property values prior to bidding.
Researching relative property values before you put an offer on a home is critically important.
“In a dynamic market, you and your agent should search for similar homes that have sold very recently, ideally within the last three months,” Harty says.
But data on comparable sales won’t give you the whole story. These days, you also need numbers to track the direction of the market -- whether prices are heading up, down or sideways. Ask your agent to give you data on the median price of a home sold this past month versus the month prior. Also ask for median price comparisons on an annual and yearly basis. These statistics should give you a good feel for the trend.
Use this information when crafting a bid for a property you like. If selling prices are moderating in your target market, you can be more assertive with your opening bid. Also, you may not need to waive your right to a home inspection, as many people did during last year’s bidding wars.
“In every market, there are highly motivated sellers -- people who absolutely must move for whatever reason. As a buyer, it’s now reasonable to expect motivated sellers to prove more accommodating to your needs,” Harty says.
(To contact Ellen James Martin, email her at firstname.lastname@example.org.)