It is a buyers' market, no doubt. Buyers have unprecedented inventory to select from. February sales fell yet another 9.6%, worse than economists expected. Median price is down 5% from this time last year. Affordability is at an all time best, and inventory rose 3.5%.
Put all these together, you get buyers' market -- in a big way.
So how do you buy a house in today's climate? Some diligence.
1. Select more than one home.
This is a great time for buyers, but one that is driving sellers crazy with frustration. Many are still in the mindset that they will get their ideal price for their house. Even reasonable offers get turned down. The general (very general, it's market specific) rule of thumb I tell people today is to offer 10% below asking in most markets, 20% in the previously overheated ones. If the seller doesn't want it, just move on. Banks are more eager than ever to sell the short sales, so consider looking at homes in short sale status.
2. Know your credit score and shop the mortgage.
It's tougher than ever to get credit and interest rates are becoming steeper (though still super cheap) coming close to 5% again. Toughening credit standards continue to make it difficult for the self-employed or people without a full 20% down to get any type of traditional loan. This isn't necessarily bad for the market in general, but not great if you want a new pad. A high credit score is more important than ever. This may change how you chip away at debt. If you are paying down debt only for that purpose, it makes sense to chip away at it based on either highest payment that is causing you worry, or highest interest rate that is making you go more in debt. But, that isn't necessarily the best way to bring your score up. Getting each balance under 50% of its limit (30% even better) is going to get those scores up. Get your credit score as high as possible to have the negotiating power.
3. Be very careful buying into a new neighborhood.
It sounds great to have "new everything". Hell I like it a lot and even found a new place in NYC, almost unheard of because I like to walk in and have stuff work. But, many of these areas with "new everything" are ones where builders overbuilt, and you may not know the house for sale down the block is actually a foreclosure. As those mushroom, the value of your new home will go down. Look for areas that are established. Older (but good) schools and grocery stores are an indicator.
4. Don't make an offer with contingencies. Sell before you buy.
No one likes to be without a home, or in a hotel or a 1 or 2 month rental. But even more, sellers (and the agents advising them) hate contingencies. Bonus to you, not having the debt on your books (and maybe even a little dough if you are one of the few who will get money from the sale) will look great for your loan app/credit score and great to the sellers. Making the new purchase contingent on your home selling isn't going to excite anyone and will put you toward the bottom of the list on two identical offers. People take offers for lower prices with no contingencies over higher prices with contingencies often.
5. Be smart. Do your research.
Location matters and not just for the obvious traditional reasons. We see this when we look at a map of where the foreclosures are at - pockets of issues. The housing crisis after all is not a nationwide one, it's a regional and local one. Take some time to find areas with lower property taxes, lower unemployment rates and shorter commutes to lessen the chance of value depreciation. Determine whether new homes are going up in the area. All of these effect prices over time. Be sure you know what the home is really worth.
Happy House Hunting :)
