Real Estate Expert to Spring Home Buyers: Jump in Now
With the spring home buying season upon us, waiting for the market to bottom will cost you. So says Michael Corbett, host of the syndicated TV show Extra's Mansions and Millionaires franchise and author of the recently published Before You Buy! The Homebuyer's Handbook for Today's Market.
AOL Real Estate chatted with Corbett, along with Coldwell Banker CEO Jim Gillespie, who wrote the foreword to the book, about what homebuyers can expect in today's drastically different housing market, and how to avoid the kind of sales that lured homeowners into the last boom and bust housing trap.
After the jump, find out what type of property both experts agree is more trouble than it's worth for the average buyer.
Why Waiting for the Bottom Backfires
"There are 16 million renters in this country that can afford a median-priced home in their
But both Gillespie and Corbett caution new homebuyers against waiting for the proverbial bottom to drop out.
"We never know when we have hit bottom until it's past," says Corbett. Furthermore, what's unique about the current housing market isn't just low prices – it's also historically low interest rates. "They work together," Corbett says. "It's a real balance, and interest rates are going up. Anytime you buy within this bell curve, it's a good time, because interest rates are so low."
Short Sales and Foreclosures: 'Leave Those to the Pros'
"If you're looking to get a good deal, you're doing yourself a disservice by only looking at foreclosures and short sales," says Corbett. With foreclosures "you're buying a property 'as is,' the sales are very complicated, and they're not necessarily a great deal."
As for short sales, Gillespie, who had the bad fortune of waiting five-and-a-half months to close on a deal gone awry, says they're often not worth the effort.
"With so many good properties on the market, there's no need to buy a home sight-unseen in competition with investors paying cash," he says. "A lot of times you're not even allowed to see the property, so you don't know what you're buying." Additionally, the longer a buyer is tied up in short sale red tape, the greater the chance of missing lower interest rates.
Foreclosures and short sales "are so scary," Gillespie says. "Leave those to the pros."
Cash Is King
"The days of no money down are gone," says Corbett. "I am a big proponent of putting 20 percent down. It gives you security, it helps you buy safe and protects you – and it's what homeowners are looking for right now."
Additionally, paying 20 percent or more enables homeowners to waive private mortgage insurance (PMI) fees, which on average can cost $55 a month per $100,000 financed. In real terms, PMI can cost approximately $1,650 a year for a $250,000 loan. Of course, saving such a large sum is easier said than done.
"It's also about buying a home you can afford," says Corbett. "Always take less than what the bank is offering you. Get a cheaper house. You really want that safeguard – never overextend yourself."
Can Flipping Still Work in Today's Climate?
Not the way homebuyers perceived it during the housing boom, says Corbett. "As long as we're clear that flipping is not speculating...because that's a dinosaur now." The difference for Corbett lies in the expectations of the homebuyer.
"If you're handy and can put a little TLC into something that needs work, absolutely – it's you building equity into a property, as well as the equity building by paying down the mortgage. That to me is what flipping is. Speculating is buying something and just hoping the market will run up and you can sell it off – that is an absolute no-no."
For first-time homebuyers, Corbett suggests that house hunters resist the urge to buy finished homes and consider the benefits of so-called fixer-uppers. "Right now, it's a matter of buying a home that you're going to stay in for a while." The days of sky-high appreciation are over, he said, so homebuyers should anticipate living in their new home for at least three years. The combination of sweat equity and steady mortgage payments adds value to your property gradually over time – and is far more realistic than the kind of property spikes witnessed in recent years.
Is Buying Still the Name of the Game?
Despite the many setbacks faced by American homebuyers in the past years, both Gillespie and Corbett remain optimistic about the future of housing--but with an important caveat.
"The American Dream has changed," Corbett says. "It used to be, buy the biggest house you can for the least amount of money." But now, he says, the goal is simply to own a home you can afford and eventually pay off.
"So yes," Corbett says, "the dream is still alive and well – it's just back to what it used to be."
These AOL Real Estateguides can help, whether you're in the market to buy, rent or sell:
- How to Shop for Your First Home
- Tips for Finding a Rental Apartment
- How to Price a Home to Sell Fast
- Vacation Homes: Is Now the Time to Buy?