By Dian Hymer
A couple of years ago, home buyers were confident about making an investment in the housing market. With prices racing higher at a break-neck pace, how could they go wrong?
Now, the housing market is softening. Home values may not increase much, if at all, for a while. In some areas, prices will drop. In high-end markets around the country, home prices have already declined from a year ago.
Many buyers today are wondering what will happen to housing values. Because they're concerned about future home price appreciation, they're questioning whether this is a good time to buy.
No one knows for sure what will happen to home values in the short run. But, over the past fifty years, residential real estate values have increased at a rate that exceeded the inflation rate.
House Hunting Tip: A critical variable to consider is your intended period of ownership. The real estate market is cyclical. If you buy at a peak and sell in a trough, you'll lose money. But, if you can wait out a downturn, and sell when the market hits an up-cycle, you should come out ahead. Buying for a time period of less than five years is risky.
Buyers who are thinking about relocating within a couple of years shouldn't buy now. The downside risk is too great. And if your job situation is uncertain, postpone your home purchase until your finances are stable.
Today's market does offer opportunities for buyers with financial security who plan to buy and hold. Interest rates are as low as they've been since 1962. Lower interest rates make home buying more affordable, as do softening home prices.
The inventory of homes for sale has increased in many areas. This means there is more to choose from. And, the possibility of having to compete with other buyers for a home has decreased.
Make sure, if you do decide to buy now, that you buy from a seller who understands that the market has changed. Motivated sellers, who are realistic about the market, are pricing their homes accordingly. Also, take your time, before making an offer to buy a home. Review the inventory in your price range to make sure that you don't pass up a good buy.
Last year, buyers who were in competition with other buyers made offers without contingencies to protect themselves. Sanity, and a reasonable standard of care, has returned to the home sale market. So be sure to include contingencies in your purchase contract.
In addition to the standard financing and inspection contingencies, it's a good idea to include an appraisal contingency for the property to appraise for the purchase price. Due to the softening market, some appraisals are coming in low. If you make an offer without an appraisal contingency and the home appraises for less than the purchase price, you could have to make up the difference in cash.
Some buyers will try to time the market so that they buy at the lowest point in a cycle. This is difficult to do since it's only through hindsight that we know that a cycle has bottomed.
Many buyers prefer to buy when everyone else is buying, even if it means paying outrageously high prices. However, the best buys will be made between now and the next up-cycle, while there are fewer buyers in the market and more listings to choose from.
The Closing: Finding a home to buy is rarely easy, so plan to buy when you find the right house. Interest rates won't stay this low indefinitely.
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