Real estate guru Spencer Rascoff has one word to describe the current real estate market: stuck.
In some cases, high mortgage rates have priced wannabe owners out of the market. Other buyers are awaiting a steep decline in rates before they’ll reenter the fray. Meanwhile, many owners with low-rate mortgages are delaying a trade-up move that would cost them higher home finance outlays.
“That’s a lot of stuckness,” says Rascoff, the former CEO of Zillow, the national realty company.
There’s no mystery about what’s going on with the economy. To tamp down inflation, the Federal Reserve is deliberately pushing up interest rates to cool economic activity. And its program is gradually working, slowing real estate transactions as one result.
The reluctance of owners to put their property on the market is constraining the supply of available housing in popular areas, says Rich Rosa, president of the National Association of Exclusive Buyer Agents (naeba.org).
Rosa, who heads a realty firm with 16 brokers, says sought-after Boston suburbs are among the areas where inventory levels remain depleted.
He says a shortage of available housing options continues to frustrate many of his home-buying clients, including a single woman who urgently wants to acquire a condo in Wakefield, Massachusetts.
“This woman is determined to escape her rental unit but can’t find even one condo to her liking in the neighborhood of her choice. Still, she vows to persevere despite affordability challenges,” Rosa says.
In contrast to this single condo buyer, many would-be purchasers are waiting on the sidelines in hopes of taking advantage of a major drop in home prices.
Yet Rascoff and other housing analysts are skeptical that steep price reductions are likely anytime soon. Though prices have slipped in some parts of the country, the situation is very different than in 2008, when housing values plummeted and foreclosures ballooned.
“What’s different now is that people have a lot of equity in their homes,” which makes foreclosures less likely, he says.
In all markets including the present one, there are diehard purchasers who insist on moving forward rather than waiting until the barriers to buying drop.
“There are always people fed up with their rising rents, and families with newborns and young kids who need a larger house,” Rosa says.
Here are a few pointers for committed buyers:
-- Keep an eye on overpriced properties.
Merrill Ottwein, an Illinois-based broker with a long track record working with novice buyers, says some first-timers overlook an important reality in real estate. This is that buyers sometimes get the best deals on properties that were priced too high in the beginning.
The trick is to be sure you’re among the first to know when the owners of a desirable property in your neighborhood of choice decide to take a significant price cut. Ottwein says buyers should tell their real estate agent to alert them immediately when this happens.
-- Don’t rule out a dated-looking place.
Cash-conscious buyers may want to consider a category of properties a notch below the fixer-upper.
These are essentially well-kept houses. The electricity, plumbing and everything works. But their owners, though conscientious in some respects, have neglected the interior decor. Hence, they may be forced to sell at a price that’s well below market value.
One real-world example involved a retired engineer and his social worker wife. The couple had lived in their custom-built contemporary-style waterfront house for more than 30 years. The engineer kept the heating and cooling systems in order and made sure that roof repairs were done promptly.
When they put their house on the market, a big drawback was its drab interior. The interior paint, wallpaper and home furnishings were essentially the same as they’d been when they’d first moved in.
Given its condition, the house couldn’t fetch anywhere near what the couple sought in their asking price. Soon they gave up and sold it to their grown daughter at a steep discount.
But Ottwein cautions against mistaking an out-of-fashion house for one with serious underlying issues -- what might better be termed a true “fixer-upper.”
He recommends a thorough inspection to determine whether a home has fundamental flaws, such as a failing air conditioning system or a bad roof. These are far more costly to fix than is an uninspiring decor.
-- Screen for highly motivated sellers.
In real estate, as in many transactions, time is money. Sellers who must move quickly -- perhaps due to a marital breakup, job relocation or financial reversal -- are obviously more likely to let their property go for a bargain price.
You don’t have to pry or do anything sneaky to find out more about the motivations of owners in an area where you’re searching for an affordable first home. Often, sellers telegraph their intentions through online or print ads placed by their listing agent. Perhaps their ads will read: “Seller Motivated” or “Must Move Quickly.”
If the ads don’t reveal the sellers’ motivation, a few casual inquiries placed by your real estate agent to the listing agent could do so.
“It’s amazing how often listing agents will reveal the real motivations of their clients, even when it’s against their clients’ interest to do so,” Ottwein says.
Once you grasp the sellers’ motivation and their timing, you can customize your contract offer in keeping with their specific needs. Flexible buyers who’ve also been fully preapproved for a mortgage and can document this are the most likely to command the sellers’ attention.
“The obvious truth is that highly motivated sellers are much more open to both offers and counteroffers. Often, it’s just a simple matter of timing,” Ottwein says.
(To contact Ellen James Martin, email her at firstname.lastname@example.org.)