When is the housing market going to “hit bottom”? Who has the crystal ball? I would like to know. We all, as consumers, love nothing more than the feeling of getting a great deal on a purchase. Being able to boast to our friends and neighbors, we paid less than anyone on the block for our home is the king deal finder. But is that the entire story; are we only considering one aspect of the process and forgoing other important factors? After all, chasing the housing market to “the bottom” is like a dog chasing their tail. You will only end up running in circles, dizzy, and still not a home owner.
Consider this, home value declines have slowed to a trickle in Hampton Roads. After declining roughly 5-6% over the first half of 2010, We saw prices decline just 1.5% in the last quarter of 2010. So is that the bottom we just bumped against? Is that what you as a potential homebuyer were waiting for? There is quite a bit of speculation on that nationally, but I am quite positive Hampton Roads is not trending the same as somewhere like Detroit or Miami. So where are you getting your information? The most accurate answer is that we are somewhere near the bottom, or even past it. Many recent home sales in Hampton Roads saw competing offers in the last several months.
One thing I know for sure, there are two very important factors you may be overlooking:
It is important to understand what this means, and how it will affect you when buying a home. Before the values of homes start to swing upward, the market will have already changed to a seller’s market. Home prices are primarily a factor of supply and demand. When demand rises and the home inventory wanes, we begin to see several buyers competing for the same great homes. This means the seller can pit the buyers against each other in a bidding war. The outcome is typically one buyer agreeing to pay slightly more, and MOST importantly demanding less of the seller in closing cost assistance. This is very important to understand. Wouldn’t you rather be able to ask the seller to pay most or all of your closing costs for you? You just lost $10,000-$12,000(on a $250,000 purchase)!
Depending on the length of time you stay in the home, this could be the single most important factor. So let’s say you are considering a home for $250,000. You feel if you wait until later this year this home may be available for 1% -2% less, saving you $2500-$5000 on the price. Not too shabby, huh? But wait a second; two other buyers are thinking the same thing. You come home and see the news; Interest Rates begin to rise sharply. So you decide to make an offer (and so do the other 2 buyers). In the end, you offer 1% higher price, and only ask the seller for 2% closing cost assistance. And congratulations the home is yours. But wait, interest rates have risen from 4.25% to 4.75% in the week you are negotiating this deal.
So let’s summarize, you saved 2% by waiting for the bottom($5000), you paid 1% more to WIN the deal(so you just gave back $2500), you also accepted 2% closing cost vs. 4% closing costs (losing another $5000). And over the next 30yrs you will pay interest at 0.5% higher rate. (costing you another approx. $25,000). Ask your mortgage banker to do the math for you. So the bottom line is, you lost $32,500 by waiting for the “bottom of the market”
Trust me. Unless you have a crystal ball, this is how it happens. The bottom comes and goes before you ever knew what hit you. The real estate market has never been better from a BUYERS perspective. What are you waiting for? Consider these important factors when considering a home purchase.
DON’T CHASE THE MARKET! Happy house hunting.