In Central Ohio, real estate agents frequently hear home buyers say they’re going to wait until the market prices hit the bottom before they buy. Not a bad strategy since no one wants to pay a too-high price for anything – not just homes.
The big question regarding this strategy is “HOW WILL YOU KNOW WHEN THE MARKET HAS HIT THE BOTTOM“?
Even the economical experts don’t have a good answer on this. Bernacke recently said that he “expects” the market to improve by 3rd quarter. The 3rd Qtr is only two months away. If a home buyer starts their home buying process NOW – getting pre-approved for a loan, shopping for a home, entering into a contract to buy, waiting 30 days to close – then the two months are here!
The obvious answer to the “how will you know” question is ……. YOU’LL KNOW WHEN THE PRICES START TO INCREASE! Oops!
So let’s assume your price range is around $200,000. Right now, prices are depressed and interest rates are very low. Sellers are nervous and may be willing to negotiate to make sure they capture one of the few buyers that are shopping now.
The reason there are fewer buyers now, is because other buyers are sitting on the fence just as you are.
Builders have reduced the number of homes they’re building. Resale inventories are relatively low compared to past years. So overall inventory has or is, stabilizing here to more closely match the lower buyer demand.
We’re coming to the time of year when demand normally increases because families want to move during the summer months when kiddies are out of school. What do you think will happen when that demand increases?
- The sellers may be less willing to negotiate because there are more buyers looking at their home.
- The increased demand generally increases interest rates.
- You’ll be competing with more buyers for the lower inventory and may need to pay closer to list price for the home.
- Higher demand will increase prices. Remember your Econ 101 class!
The most important factor in the above is the increasing interest rates. You may end up paying $195,000 on either side of the curve but if the interest rate you pay is 5.5% on the rising side versus 4.75% on the declining side, then you’ve lost for the long term. A higher interest rate, spread over 30 years makes a substantial difference in your total cost.
Refer to the article I wrote a couple days ago to see that even though fewer homes were sold this past Jan-Apr, the prices didn’t decline nearly as much as the unit volume sold. If you wait hoping that prices will decline another 5%, you may just find you waited too long. Nobody knows.
The one thing we DO know is that you may have missed buying your favorite home and enjoying spending the summer living in that new home versus spending the time in that cramped apartment or too-small home.
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You know you hit bottom when you look in the rear view mirror 6 months down the road and realize you missed the exit.
Seriously, If you love the house and the price is in your range build it or buy it
Gail Devine
mddesignhomes.com
I think you’ve got a good point when you say they’ll know when prices have hit bottom when they start going up again.
Is everyone so intent on using their home as a speculative venture that they’ve forgotten what a home is supposed to be?
And if they intend to use it for enjoyment, are they willing to miss the home they really want just so they can buy one they don’t really want because prices are escalating and they need to “jump into one?”
Chuck, I think we have the media to thank for the speculative nature that people are giving to homes. Homes aren’t the same as stocks, bonds, or CD’s. They’re a place to live in, make memories in, raise families in, and generally enjoy life in.
My husband wrote a blog on the “American Dream” that I think everyone should read. To many people have been playing with the housing market as if it is stock, and it’s not. It’s the dream they have had since childhood. I really believe the media, speculators, and our Government has seriously messed this market and people need to listen to their hearts and not anyone else when buying a home.
It’s been a few years since we’ve heared wrestling in the bushes to do remodel additions and custom homes, but we are hearing the wrestling now. This is what makes me think we are near the bottom. Also, all of the Real Estate agents I deal with here in Northern California concurr that if the house is under $600,000.00 Thousand dollars, those are what’s selling right now.
Gail Devine
In many markets it seems like a bottom may have been reached. I as you don’t think there will be a invitation in the mail saying please join the party, this is the bottom. What makes the market jump is when people wake up and realize the market has it own time table. I am seeing bidding on many properties in our market and what was a low, low deal is getting bids and moving a bit. Yes this is spring, and we are supposed to get bids, however it is good to see that kind of action. I am in Bergen County New Jersey, an affluent market, with a broad spectrum of prices. We have been declining for about three of years in general, It seems like we are finding support now in the market.
I’ve heard several agents mention that they’re getting multiple offers now as well – on “regular” homes, not just REO’s.