It’s A Buyers Market. So, When Are You Going to Buy?

A buyer’s market is technically defined as: “A market condition characterized by an abundance of goods available for sale.” The in-depth definition from the same source is: “When a buyer’s market exists in commodities, the buyer is able to be selective in purchasing contracts, as there are many individuals wishing to sell. Furthermore, these buyers will generally be able to purchase contracts at lower prices than those that were previously prevalent.”

The simple version is: when no one else wants a product of value — buy it, because the price will be lower whereby you’ll be able to maximize your investment for future gain. In essence — buy low, sell high.

When it comes to purchasing real estate, it’s not as easy as investing in your 401K or savings account. Those are simple. You can select as little as $1 to invest each month or as high as the law will allow — thousands per year.

Most people really don’t worry about how the stock market ebbs and flows as they are using the practice of dollar cost averaging to invest: “Dollar cost averaging is the practice of investing or saving money at specific times, regardless of market conditions or your personal financial outlook,” according to a beginners guide to investing from About.com. The idea is that if you keep investing over the market levels (low and high) you will, through the law of averages, make money in the long haul.

The challenge with that type practice in real estate is that you can’t slip into real estate investing. We don’t buy our housing investments month after month with prices up and down. Instead, we slap down the down payment when it’s time to buy. And wherever the market is, is where we start.

The best strategy for real estate and the best way to make money in real estate is to buy low, when the conditions are in the favor of the buyer to buy. Your start-up purchase is where you “begin” your investment growth — and that’s why I submit to my buyer friends the above headline question, again: “It’s a buyers market. So when are you going to buy?”

Today in many markets you can buy a house for 5 to 10 percent below asking price. For a $300,000 purchase, that’s between $15,000 and $30,000 off your mortgage. On a 30-year fixed rate mortgage at 6 percent, that reduction in mortgage amount would save about $180 per month (more than $2,000 per year).

In addition, many sellers are willing to help with closing costs just to sell their house. For example, in Fairfax County, Virginia (just outside the Washington, D.C. area) half of the 3 bedroom 2 bath single-family homes sold in the last 30 days included a seller subsidy ranging from $500 to $15,000 (the average seller subsidy was $8,790).

Then there are the prices. While they have been flat over the last couple years, they are starting to increase. This is where you’re research on the housing market must turn local. The national numbers mean nothing to you when it comes to investing in real estate. Where are your average prices? Are they flat, deflating or appreciating?

Nevertheless, there are hot pocket markets. In the DC area, there are several zip codes that, when looking at the numbers, are technically in sellers markets. In these areas, homes are selling in under 60 days, prices are up, unit sales have outpaced the level from a year earlier and total sales volume is expanding. The thing is, though, the pressure from surrounding zip code markets keep the prices from escalating as fast as their potential.

Let’s review — you have plenty of housing inventory from which to choose. Sales are slow, so sellers are offering thousands of dollars in incentives to tempt you to buy. Prices are flat. Interest rates are still historically low. Sounds to me like the buyer who has been waiting on the sidelines needs to get off the fence and pull out his checkbook.

Written by M. Anthony Carr

Back To Basic Home Buying Skills

Lenders tightening their purse strings are sending a signal to potential home buyers to do the same. There’s really little choice.

Just as lenders make certain mortgage applicants are gainfully employed, are sure they can actually afford to pay the mortgage during it’s full term, and carefully document that buyers have the cash to cover additional costs that come with home ownership, potential home buyers need to get their financial house in order as well.

If people were more responsible for their own financial behavior, that would have taken the power away from the people who put them in risky loans. The reason for all the creative financing was because people didn’t want to do the work.

This involves hard financial work and sacrifices many households have long avoided.

As a carrot, keep in mind, the benefits of owning your own home, likely to be your most valuable asset, far outweigh any passing pain you may endure to achieve that goal.

Here’s how to prepare for what’s become a more difficult home buying ordeal.

Set A Tight Budget.

You need to know all sources of every penny and you need to know where every penny goes. You can’t know where you can cut costs until you know in detail what those costs are.

Offering a budget template, the Better Business Bureau says, “A budget will provide you with a roadmap to financial security. If you drive carefully, perform the right repairs and maintenance along the way, and steadily steer toward your long-term goal, you’ll wind up where you want to be.”

Save. Pinch Pennies. Save Some More.

Saving is a prerequisite to homeownership.

If your budget reveals you are spending money on eating out when you can eat healthier for less at home; if it shows you gulp way too many cups of Joe at the local cafe when you can invest in a commuter mug and brew your own at home; if it shows movie rentals by mail cost less than screening every major motion picture live, you’ve already found hundreds of dollars to save.

Stop traveling, stop partying and stop unhealthy habits that could leave you too weak to take on that second job. Bulk up your habit of spending only for what you need, not what you want.

If you don’t have a savings account worth three to six months of your net income, you are already a financial disaster waiting to happen should there be an emergency.

In addition to money for the down payment, lenders today will expect you to have some cash left over for insurance, taxes, maintenance and other costs that come with homeownership.

Certainly, it could take years to build the kind of down payment pot that will get you the lowest possible rate in an expensive housing market, but think about the time it will take you to recover from a loan you can’t afford should that loan lead to foreclosure and a financial meltdown.

You really can’t afford not to save. You really can’t afford not to find more ways to save.

Read Your Credit Report.

Don’t just get it. Read it. AnnualCreditReport.com is the only federally-approved website you should visit if you want a truly free credit report. Other websites will give you your report for “free” but typically only after you sign up for other cost-based services. You are trying to save money, not come up with more things to buy.

Your credit report is a report card on your credit use, the good, the bad, the ugly and, too often, the incorrect. Which is why you want to see it, If there are errors follow the instructions to correct them.

Also visit MyFico.com to learn how to improve your report and your credit score — a numerical rendition of your creditworthiness.

Get Some Help With Direction.

Can’t figure what your credit report is trying to say? Not sure how to calculate what you’ll need to save? Don’t know how to set up a budget?

It’s okay to ask for help. It’s smart to ask for help. You don’t know everything about buying a home. If you are a first-timer you likely know very little.

Learn how to find answers.

Whether it’s your REALTOR, financial planner, financial counselor, or mortgage broker, they are all here to help you.

Get help in setting goals, sifting through mortgage programs, understanding the title and escrow process, finding a home and keeping a home — all well before you are actually in the market for a home.

Again — well before you actually begin to shop for a home.

Learn about market and economic conditions that could impact your decision. Learn about home prices, mortgage rates, home buying costs and other issues surrounding what’s likely to be your most complicated purchase ever.

Written by Broderick Perkins

Buying To Expand Can Be Tricky

It may be better to buy the square footage you need in a [tag]neighborhood[/tag] of [tag]larger homes[/tag] rather than buying into a neighborhood of [tag]smaller homes[/tag] with plans to build up or out. At the very least, if you decide to shop for a home you want to expand, also shop for zoning laws that will allow it.

The purchase money you save up front on a smaller home may not be worth the headache that could come later from [tag]building restrictions[/tag] and [tag]market conditions [/tag]that leave you with a home that doesn’t fit.

Shifting cash into [tag]major home improvements[/tag] can have a triple [tag]payoff[/tag] — the work will likely increase the value of your home, boost your net worth and improve your quality of life, especially if you need room for an expanding family.

But if you’ve got a case of palace envy and plan to tear down walls or pop off the roof to create an expansive estate, make sure you don’t move into a community where zoning laws won’t let your home become your castle.

Numerous jurisdictions passed restrictions preventing so called “monster homes” in response to the late 1990s “wealth effect” of stock market endowed riches. Many home owners used their stock market winnings to rebuild homes, twice or three times their original size — much to the chagrin of neighbors.

Today, the cost of housing is forcing many owners to consider staying put and expanding their home, but that door may be closed.

Bowing to community pressures, jurisdictions enacted home improvement restrictions that prevent home owners from spreading out or up too much. Often based on the lot size, square-footage and footprint of the existing home, the new zoning laws are designed to allow neighborhoods to retain their character as well as prevent starter mansions from physically over shadowing their neighbors.

Even where such laws don’t exist, you must consider a major home improvement’s impact on your resale. Rebuilding or expanding a home beyond the scope of existing homes could be financially hazardous if you plan to sell the home later.

Major home improvements don’t always return to the value of the home the full cost of the work and even if you plan on remaining in your home indefinitely, your heirs could be stuck with a very large, immobile white elephant.

In the best of markets, where there’s room for appreciation, improvements are generally wise if they don’t push your home’s value beyond 20 to 25 percent above the current value of like homes in the community, appraisers say.

In a tired market where there’s less wiggle room, your improvements should keep your home’s value in line with the value of existing homes.

In any market, if your neighborhood’s homes have mixed values, keep your improved home’s value just below the top values. The high end homes will help buoy your home’s value, while offsetting pressure from low end homes to sink it.

Written by Broderick Perkins

It Is A Good Time To Decide

It sounds tired, trite, hackneyed, even a little specious, especially when it’s become little more than a marketing slogan used to describe just about any housing market, no matter how bleak or bright.

However, right now, the popular refrain, “It’s a good time to buy,” resonates with a more resolute ring of truth.

Home sales are taking a dive, prices are tumbling, mortgage rates are relatively low, builders and sellers are offering concessions, and the most recent forecasts say the market is hovering just at or above bottom.

Given no one can actually pinpoint the bottom except in hindsight — after the market rebounds — waiting for that elusive place in time is as risky for buyers as it for sellers waiting for the market to peak.

But before you rush out the door in a frenzied attempt to stay one step ahead of the bottom feeders, remember that a “good time to buy” for you may not be the same “good time to buy” for someone else.

Personal considerations trump the generalities.

Instead of making the home-buying decision based solely on market conditions, consider it in a more holistic context.

It’s only a good time for you to buy a home, typically, when owning is cheaper than renting and a home purchase is a natural fit for your financial needs, goals, obligations and lifestyle.

Consider market conditions — it’s wise to buy low and sell high — but also examine your complete financial picture, other goals in life and plans for your family.

It’s not easy.

The current market offers a big carrot.

“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,” said Jerry Howard, CEO of the National Association of Home Builders (NAHB), in a recently release.

“Consider the facts: prices are competitive, rates are low, the selection of homes is high in all price ranges and sellers are ready to bargain,” he added.

Right now, however, if you take the plunge but can’t tread water until the market again surges with waves of home price appreciation, you could sink.

On the other hand, if you don’t take the plunge and home price appreciation swells, well, you could be priced out of the market — grounded.

“First-time home buyers who choose to ‘play it safe’ and keep renting are essentially postponing the opportunity to build household wealth. Currently, with rental vacancy rates tightening, they can probably expect to see an increase in the rent they pay. No one can accurately predict the peaks and valleys of the housing market. If you try waiting for the absolute best deal, you could end up literally waiting for years, missing out on the opportunity to become a homeowner while prices are moderating,” NAHB advises.

It’s a real Catch-22.

Over the long haul, real estate prices and values rise, historically, by an average of about 5 to 6 percent annually. At that rate, the value of homes doubles every 13 years, says the NAHB. Your market may do better or worse.

Will it pay to buy and hold now or stick to your current investment and savings plans now and buy in the future? As you wait to buy, will your financial planning generate the same rate of return or more than you could expect from a home investment?

How will you compare the value of the tangible asset that comes with owning a home? It’s not just an investment, but also your own roof over your head.

You don’t have to make the decision alone, you probably shouldn’t, but you should make the decision.

Get professional financial planning help, expert tax advise and some experienced real estate and investment insight.

Maybe it is a good time for you to buy a home. Maybe it isn’t.

But current market conditions do indicate it is a good time to decide.