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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