The Perfect Storm for Buyers...Now IS the Time!

If you are on the fence about buying, maybe this article will help you understand the opportunity you have if you were to buy NOW. Enjoy!

Five reasons to buy a home this year

Affordability returns to housing, and buyers have loads

of negotiating power

CHICAGO (MarketWatch) -- People are afraid to buy a home in times like these, with the economy tanking and home prices continuing to fall. But if you're brave enough to stray from the herd, you might be in for the home-buying opportunity of a lifetime.

Ask for price reductions, improvements, closing costs -- whatever -- and the seller, desperately trying to get a contract, is very likely to work with you, said Jay Papasan, one of the authors of the book "Your First Home." When the market starts improving, your negotiating power starts to diminish, he added. "People can get a lot of what they need and almost all of what they want today," Papasan said. "Once a few people get off the fence, there's safety in numbers and you lose your leverage."

If you're qualified to buy a home now, the purchase makes sense for your situation and you're prepared to live in that home for at least five years, there are five reasons why you may be headed for a great deal:

1. Affordability is better than ever

According to the National Association of Realtors' housing affordability index, homes were more affordable in December than at any other point since the group started the index in 1970. The affordability index is a measure of the relationship between home prices, mortgage interest rates and family income. John and Julie Chilman, for example, recently have been able to stretch their dollars in the Las Vegas area. The listing price for the five-bedroom home they're buying was $265,000; they offered $250,000. "Our Realtor was like 'Yeah, pipe dream. Like they're going to take that,'" John Chilman said. "And all they did was counter $255,000... and they're paying all closing costs." The home had lingered on the market, and was listed for $310,000 just six months ago, he said. In Las Vegas, prices have fallen 50.7% from their peak and are now where they were in the second quarter of 2002, according to data from Clear Capital, a real estate valuation and data provider for banks and investment firms. Housing prices are down and mortgage rates remain low, but home buyers should be aware that they're in it for the long haul.

MarketWatch's Amy Hoak reports. (Feb. 5) A report from Moody's Economy.com, released this week, predicted that house prices will stabilize by the end of this year, even though the Case-Shiller house price index will fall another 11% from the fourth quarter of 2008. By the end of the real-estate downturn, prices will have fallen by double digits, from peak to trough, in almost 62% of the nation's 381 metro areas, according to the report. In 10% of the areas, declines will be more than 30%. Not all markets have experienced huge drops, however, so it's wise to take a look at how far prices have fallen in your area. The Office of Federal Housing Enterprise Oversight's Web site has a house price calculator that can help. Visit the calculator.

2. You have a large inventory to choose from

In many places it is taking months to sell a home, creating loads of inventory -- from new homes to existing homes to foreclosures. There was a 12.9-month supply of inventory in December given that month's sales pace, according to NAR. A large selection gives buyers more choices and drives down prices. And home sellers have gotten the picture. It's fair to say that home sellers have become "increasingly desperate," Papasan said. "People who have had for-sale signs in the yard for six months are starting to become in tune with the reality of the situation," he said. Buyers can take advantage.

But if you put off a purchase until inventory shrinks substantially, you might not get as good a price, said Eddie Fadel, author of the book "Don't Rent, Buy!" And be forewarned: It's nearly impossible to time the exact bottom of the housing market and even if you do there's no guarantee you'll make a killing. "You buy for quality of life... don't buy on speculation," said Duane Andrews, CEO of Clear Capital. "I wouldn't buy a home expecting the housing market to rebound quickly in the next 10 years," he said, adding that he expects moderate gains in values when the turnaround does happen. Historically, real estate appreciates about 5% a year over the long term, said Nancy Flint-Budde, a Salem, N.Y.-based certified financial planner. But as the country crawls out of a recession, many markets probably won't see huge home-price gains any time soon.

3. Builders are offering big discounts

Home builders are getting even more aggressive with their pricing. In fact, Fadel recommends looking at completed new homes first because builders are offering such steep discounts. Plus, you'd have a warranty not only on the home itself, but also on the home's appliances, he said. "[Builders] want to save their credit, save their brand, save their reputation and clear out inventory," he said. "They can go buy cheap land today with that cash."

His advice: Walk in with a preapproval for a mortgage, make an offer, then walk away without making a deal if you have to. Chances are, a builder will call back and reconsider that offer rather than let a potential buyer get away. Read more on the outlook for home builders in the spring sales season.

4. Mortgage rates are historically low!

It's not just the price of the home that will affect affordability; mortgage terms will also affect your monthly payments. These days, rates are very attractive for conforming loans, those that can be purchased by mortgage agencies Fannie Mae and Freddie Mac. (The current limit is $417,000, although that can rise as high as $625,500 in high-cost markets.) Earlier this year, rates on the popular 30-year fixed-rate mortgage hit a level not seen in decades, and rates have stayed relatively near that low for weeks. This week, the 30-year fixed-rate mortgage averaged 5.25%, according to Freddie Mac's weekly mortgage survey. See full story.

More mortgage help could also be on the way. Last week, President Obama said that his new economic plan, which Treasury Secretary Timothy Geithner is set to unveil Monday, would help lower the cost of mortgages for home buyers, although he did not give specifics. But low rates don't mean lenders are handing out mortgages easily. You'll need good credit, a substantial down payment and a willingness to document your income in order to qualify for those great rates, if you can qualify at all.

5. You can get a federal tax credit

There's currently a federal credit of up to $7,500 for home buyers who haven't owned a home in at least three years. The credit needs to be paid back, although the repayment feature is removed in the economic stimulus plan that passed in the House of Representatives. That extra cash will come in handy: The average first-time home buyer spends about $6,000 in the first six months of owning a home, said Flint-Budde. The National Home Builders Association is pushing for more help for home buyers, including an even bigger tax credit -- the Senate in its version of the economic stimulus bill is proposing a $15,000 credit. And both NAHB and the National Association of Realtors want the incentive to help all buyers, not only those who are becoming homeowners for the first time. Waiting for further federal developments, however, might sap a buyer's negotiating power, as more people get back into the market and competition returns.

U.S. Existing Home Sales Rise on Record Price Slump

This is an interesting article. It describes a unexpected rise in sales, yet goes on to say that it is not an indication that the market is recovering. Please note that the economist who makes that observation was probably one of the 70 economists on the panel that predicted that sales would "not" rise! Besides, here in the northern VA area, we have been experiencing rising sales, '08 over '07, for the past 6 months. Enjoy, and as always, let me know if I can be of assistance. -Rob

U.S. Existing Home Sales Rise on Record Price Slump
By Bob Willis
Jan. 26 (Bloomberg) -- Sales of previously owned homes in the U.S. unexpectedly rose from a record low, propelled by the biggest slump in prices since the Great Depression as foreclosures surged.
Purchases rose 6.5 percent to an annual rate of 4.74 million from 4.45 million in November that was less than previously estimated, the National Association of Realtors said today in Washington. The median price dropped 15 percent from a year ago, the biggest decline since records began in 1968 and probably the biggest in seven decades, according to the group.
“You have to put it in the context of an even steeper decline for the previous month,” said David Sloan, a senior economist at 4Cast Inc. in New York, who had the highest projection in the Bloomberg News survey. “The net trend is still negative. It does seem that some cheap prices are attracting buyers. I don’t think it’s a clear sign of a revival in the housing market. The housing market is very weak.”
The housing slump at the center of the global credit crisis and economic downturn is likely to persist well into 2009, hurting companies such as Home Depot Inc. President Barack Obama has pledged to stem foreclosures and boost job creation to break the longest recession in a quarter century.
The index of leading economic indicators unexpectedly increased in December as the money supply expanded, a report from the Conference Board, a New York-based research group, showed today. The 0.3 percent increase was the first gain in six months and masked signs of a worsening recession. The index points to the direction of the economy over the next three to six months.
Better Than Forecast
Resales were forecast to fall to a 4.4 million annual rate, according to the median estimate of 70 economists in a Bloomberg News survey. Estimates ranged from 4.2 million to 4.6 million.
Sales were down 3.5 percent compared with a year earlier. Resales averaged 4.91 million in 2008, down 13 percent from 2007 and the fewest in 11 years.
Home Depot, the world’s largest home-improvement retailer, announced today it will cut 7,000 associate jobs and will freeze the salaries of all its officers as the housing slump persists.
The number of previously owned unsold homes on the market at the end of December represented 9.3 months’ worth at the current sales pace, down from 11.2 months’ at the end of the prior month.
The median price of an existing home decreased 9.3 in 2008 from the prior year, also the biggest decline since records began and the biggest since the Great Depression.
Single-Family Homes
Resales of single-family homes increased 7 percent to an annual rate of 4.26 million. Sales of condos and co-ops rose 2.1 percent to a 480,000 rate.
The rebound last month was led by a distressed-property related jump in the West, including California, Nevada and Arizona, the NAR said. Sales of distressed properties accounted for about 45 percent of all sales last month.
Home sales have been falling since 2005 and prices peaked in 2006. Property values are down by about 23 percent, according to the S&P/Case-Shiller index covering 20 metropolitan areas.
President Obama last week pressed congressional leaders to reach a consensus on an $825 billion stimulus plan that would generate job growth, cut taxes and spur spending on infrastructure, saying, “it appears we are on target” to get legislation passed by mid-February.
Obama Plan
Obama will use up to $100 billion of the remaining half of the $700 billion financial-rescue funds to ease the mortgage- foreclosure crisis, Lawrence Summers, his top economic adviser, said in a letter to lawmakers on Jan. 15.
Mounting foreclosures triggered a credit crisis which in turn has deepened the recession that began in December 2007 and shows no sign of letting up. The economy lost 2.6 million jobs last year and economists surveyed by Bloomberg forecast unemployment will rise to a 26-year high of 8.4 percent by the end of 2009.
Economists surveyed by Bloomberg forecast the economy contracted at a 5.3 percent annual pace in the fourth quarter of 2008, the most since 1982. The government will release its advance estimate on Jan. 30.
Builders
Builders are scaling back as sales slump and foreclosures mount, contributing to the economic slump.
U.S. foreclosure filings jumped 81 percent last year as more than 2.3 million properties got a default or auction notice, or were seized by lenders, according to RealtyTrac Inc., an Irvine, California-based seller of default data.
KB Home, the fourth-largest U.S. homebuilder, on Jan. 9 reported a fourth-quarter loss exceeding analysts’ estimates and predicted more pain for the housing market this year.
“The housing industry continues to confront unprecedented downward pressure,” Chief Executive Officer Jeffrey Mezger said in a conference call. “These conditions persist nationally, with no visible signs of lessening in the near term.”
Centex Corp., the second-biggest U.S. homebuilder by sales, said last week it plans to write down up to $600 million in the fiscal third quarter as land values plummeted. Net sales fell 80 percent from a year earlier to 1,080 units, the Dallas-based company said in a preliminary earnings statement Jan. 23.
“Abrupt and sweeping changes in the economy caused unprecedented homebuyer hesitancy, which severely impacted sales early in the quarter,” Chief Executive Officer Timothy Eller said in the statement. “As housing starts dropped to record lows and unemployment rose, buyers remained firmly on the sidelines early in the quarter.”

To contact the reporter on this story: Bob Willis in Washington bwillis@bloomberg.net Last Updated: January 26, 2009 10:15 EST