Advantage, buyer: Market shift puts first-timers in the driver's seat
The days of bidding wars, low inventory and double-digit price increases are over in most parts of the country. Following a national upswing from 2001 to 2007, in which average home values spiked more than 30 percent, the pendulum is swinging the other way.
It's no wonder real estate experts agree that now is an excellent time to buyespecially for first-timers. While lending standards may have tightened, interest rates remain at a generational low. And for the first time since 2001, sellers in many markets are willing to negotiate price and, even more important for the first-time buyer, are flexible on terms.
During the boom period, people had to make snap decisions, says Walter Molony, spokesman for the National Association of Realtors. That's a terrible market to be a buyer in.
Most first-time buyers can qualify for a loan and handle the monthly mortgage payment; the hurdle to home ownership often is coming up with the cash for a down payment and closing costs. Here's where a buyer can negotiate: A motivated seller is much more likely to help with closing costs if it means the difference between selling and waiting.
In this market there are an incredible number of [good buys] because of the number of people that need to sell their home, says Dave Jenks, vice president of research and development for Keller Williams Realty in Austin, Texas, and author of Your First Home. It's not a good time to sit on the sidelines. As a buyer in these conditions you can ask for things that in normal conditions you wouldn't be able to.
Industry experts implore first-timers to avoid getting stretched financially. Go into the transaction with affordability as your No. 1 criteria, says Jenks. While a 30-year fixed-rate loan may increase your monthly cost, the loan with the lowest payment is not always in your best interest. Whatever financing you choose, it's vital that you clearly understand the terms of the deal.
Buy in the sweet spot
Jenks recommends that first-time homebuyers search in a specific price range: a place he calls the sweet spot of the market. The sweet spot comprises properties between the median sale price of an area and 25 percent below the median. For example, the median price for a home in Charleston, S.C., is around $200,000. As a first-time buyer, that means you should shop for homes with price tags ranging from $150,000 to $200,000.
That is where your resale is easiest, where the bulk of the market is, Jenks explains. In any conditionsbuyer's market, seller's marketthe greatest number of sales and available buyers are in that category. The middle part of the market is the one that experiences the most steady appreciation over time.
Markets are local
Out of 150 metropolitan areas across the country, about half showed price increases while the other half showed price declines during the fourth quarter of 2007, according to the National Association of Realtors. The Midwest and South continue to be the most affordable regions, with slight yet steady growth in home values over time. The Northeast and the West are experiencing steeper price declines after rapid increases over the last five years.
First-time homebuyers are in better shape than a year ago, especially in coastal markets where prices have come down over 20 percent, says Norm Miller, director of academic programs at the University of San Diego's Burnham-Moores Center for Real Estate. Markets like Cincinnati and Indianapolis are affordable but you won't get rich from appreciation since these markets tend to move more modestly. Such markets are great for housing consumers and that is what most of us areconsumers of housing as opposed to investors.
The Youngstown-Warren-Boardman area of Ohio and Pennsylvania; Saginaw, Mich.; and Decatur, Ill., are some of the most affordable metro markets in the country with median prices around $75,000. Denver, parts of north Florida and northern California have seen major price drops. And Miller cites San Antonio and Charlotte, N.C., as well-priced cities with bright economic futures.
In less-expensive regions of the country, a first-time homebuyer may be able to start out in a single-family home. In higher-cost regions, you may have to consider a lower-end condo to get a foothold in the market.
Most important for the average buyer, says Jenks, is to examine a community's micro factors like neighborhood dynamics, school districts, home price movement and rate of progress or deterioration.
The Find Neighborhoods tool at Cyberhomes.com makes finding this information a snap. Simply type in a ZIP code and you'll be armed with data on local economic indicators like job growth and median household income. What's more, you can look up local housing stats on median prices, appreciation and own/rent ratios.
What's on the horizon?
Forecasters look at inventory -- the number of homes for sale -- to gauge who has the upper hand in the market: the buyer or the seller. When national supply hovers around six months, buyers and sellers are on equal terms. Currently, there is roughly a nine-month supply of homes for sale nationally, indicating a considerable buyer's advantage. During the boom period, the scale strongly tipped in the direction of the seller, with only a four-month supply.
You need to watch inventory and foreclosure rates in your local market. If these are going up the market has not yet bottomed out, Miller says. Still, there is nothing wrong with looking now. It does not make too much sense to try and time the purchase at exactly the bottom, as no one is that good.
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