So many people are agonizing over the weak housing market, and if you’re a homeowner trying to sell your home, you have every reason to be concerned. But for all the very same reasons, there’s no better time than now if you’re considering buying a home.
Sad as it sounds, all the same factors that make it hard to sell a home are the same one’s that have created a serious opportunity for buyers. In what’s one of most lopsided financial arrangements in history, what’s bad for sellers, is good for buyers. And there’s plenty of good news for buyers at that.
House prices are at their lowest levels in nearly a decade
Many homebuyers were shut out the housing market by the price spiral that drove housing higher until the housing collapse, but that situation has now reversed significantly. House prices are down nearly a third since 2006. In many markets they’re down by more than 50%, making owning cheaper than renting for the first time in a long time.
Think of it as nearly the entire housing market being “on sale”.
Mortgage rates are the lowest level in history
Fixed rate mortgages are now hovering below 4% for 30 year mortgages, and even lower on 15 year loans. To put that in perspective, in the 1980s buyers lined up to get mortgage money at nine per cent! And why not—standard rates were well into double-digits then. If you’re waiting for still lower rates, you may never find them.
Admittedly, qualifying for a mortgage is more difficult now than it was at and before the peak of the market, but if you can the benefits of securing a 30 year loan is hard to beat. Once you close on your home, your rate and payment will be fixed for the duration of the loan, no matter what happens with interest rates in the future.
And as far as qualification goes, people with good credit, a decent sized down payment and a willingness to stay within a comfortable range of affordability are still getting mortgage loans. Most of what’s gone today are zero down loans, no income verification loans and loans for people with less than good credit. That still leaves a lot of room for millions of buyers.
The combination of low mortgage rates with depressed house prices has made homeownership more affordable than it has been in at least a generation.
”Buyer’s Market” means the buyer is in the driver seat
We often hear that term thrown around, but may not fully appreciate what it means. “Buyer’s market” means that the buyer controls the transaction. In many markets there are more sellers than buyers, which is to say that sellers are competing for buyer’s attention. They’re prepared to offer lower prices, more incentives and better terms just to keep you in the deal.
Many sellers have been trying for months, even years, to sell their home. Some are experiencing financial difficulties and need to sell. You could be the only person who’s made an offer on the property in months, and that puts all the advantages in your corner.
Finding the best deals in a soft market
OK, all of that sounds good, but how does it work mechanically? How can a prospective homebuyer take full advantage of the soft market?
Clean up your credit. You won’t be in a position to take advantage of the lowest mortgage rates in history if you have credit problems. Start now, before you even begin looking at homes, to begin cleaning up any credit issues you have. Order your credit report, check for any delinquencies and get them cleared off. Some you can dispute, some you can pay off, others you can settle. Also work to lower your overall debt level, since debt payment will affect your ability to qualify for a loan.
Save, save, save! This can’t be emphasized enough. In today’s market you will need a down payment, and a fairly large one at that. Figure on at least 10% of the purchase price of the home at a minimum—some lenders may advertise less, but you may not qualify for it. Also, plan to have money saved over and above your down payment—lenders love “reserves”.
Buy within—and not over—your price range. Part of what caused the housing meltdown was people buying more home than they could afford. You can’t do that today, lenders are all over that. In today’s market you’re better off buying at least a little lower than you can afford, and with today’s lower prices that’s much easier to accomplish.
Look for distress sales. Many home sellers are having financial difficulties—that’s why they’re selling. But some are in worse shape than others. You can find some of the best deals on properties that have been on the market the longest. Six months on the market is a good starting point, 12 is even better. You can generally offer less on a property the longer it’s been on the market.
Never be afraid to walk away from a deal. As a buyer, this is your most potent weapon. Sometimes just the fact that you walk away can cause a seller to work with you. And since this is a buyers market, walking is all that much more effective.
A soft market, combined with a strong and savvy buyer equals a really good deal on a home. Will you take advantage of it?