The constant stream of news reports on rising home prices is resulting in strong reactions from income-tight young families aspiring to homeownership. Some wannabes have moved to the sidelines, awaiting the next recession and the return of a buyer's market they hope will bring flattening or falling prices.
But housing analysts say these wait-and-see buyers might have to hold out for a long time for a market more favorable to them. Frank Nothaft, chief economist at the economic think tank CoreLogic (corelogic.com), predicts that domestic home values will continue to rise, scoring a 5.2% gain by the end of 2020. What’s more, he forecasts that this year price gains will be even steeper for entry-level properties.
Of course, not all would-be first-time owners are awaiting a buyer’s market before trying to tackle the affordability challenge. Others are dropping their standards on the type of property they select, thereby putting themselves at serious risk for a later case of buyer's remorse.
Some buyers learn the hard way. Take the case of an actor and his wife, an environmental science student. After reaching their late 30s and having their first child, the couple got serious about leaving their rental apartment for a condo they could own. They targeted a popular city neighborhood, and with financial assistance from parents closed on a three-bedroom unit with bay windows and elegant moldings throughout. They thought they got a good deal.
But the property, built in the late 1800s, is riddled with severe problems. Its plumbing and electrical systems are nearly nonfunctional, and all the appliances must be replaced. Worse, all the walls and ceilings in the condo are covered in lead paint and will need to be stripped and repainted before the couple can live there safely with their 2-year-old son.
Accepting a fixer-upper with very major problems is proving false economy for this young family, who have limited funds for professional contractors. To save money, the husband is attempting to strip the lead paint himself. This has cost him precious time, cutting income from his career work. The strain is also adding heavy stress to the couple’s marriage.
Eric Tyson, a consumer advocate and co-author of “Home Buying for Dummies,” doesn’t know the family in this true story. But he says that even in an era of rising housing prices, it can be a serious error for novice buyers to take on a property with such fundamental issues.
Here are a few other pointers for first-time buyers:
-- Consider a property that needs only cosmetic upgrades.
Although buying a fixer-upper with fundamental problems could be a major mistake for buyers, purchasing one with mere cosmetic issues might be a wise choice. Such properties have electricity, plumbing and all other systems in working order, but have become outdated in terms of the interior. Hence, they may be forced to sell at a price that’s below market value.
“Folks who’ve been in their house for 20 years or longer often settle in and forget about the aesthetics,” says Tom Early, a veteran real estate broker.
But buyers have to be certain to distinguish between an out-of-fashion house and one with deep underlying issues.
Early recommends a thorough inspection to determine whether a home has fundamental flaws, such as a deteriorating foundation. One way to find a well-trained inspector is through the American Society of Home Inspectors (homeinspector.org).
-- Focus on overpriced houses.
First-time purchasers (and even veteran homebuyers, for that matter) may overlook an important reality of real estate: You can sometimes get the best deals on homes 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 property in your neighborhood of choice decide to cut their price. Early says you should tell your agent to alert you immediately when this happens.
“Make sure your agent calls, texts or emails you within eight hours after a price cut occurs,” says Early, a past president of the National Association of Exclusive Buyer Agents (naeba.org).
-- Find sellers who are highly motivated to move.
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 needn’t 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 convey their intentions directly through ads posted by their listing agent. Perhaps their ads will read: “Seller Motivated” or “Must Move Quickly.”
If the advertising doesn’t reveal the sellers’ motivation, a few casual inquiries placed by your agent to the listing agent could do so.
Once you grasp the sellers’ motivation -- and their timing -- you can customize your contract offer to their specific needs. It’s the flexible buyers -- who are fully pre-approved for a mortgage and can document this -- who are the most likely to command the sellers’ attention.
“After the bargaining starts, it’s the highly motivated seller who will be most responsive to your offers, as well as your counter-offers,” Early says.
(To contact Ellen James Martin, email her at firstname.lastname@example.org.)