Tips for Home Buyers in 2011 (From Fox News 3/25/11)

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 :)

Why the new home sales numbers dont mean jack

Analysts are all excited about the new housing numbers - unfortunately they don't mean anything positive for the market. Let's break this down.

1. There is an $8000 tax credit for “first time” home buyers. From May to June, the percentage distribution of sales of homes with prices under $150k rose from 14% of sales to 20% of sales. (For homes priced in the $150k-199.9k range, the percent of total sales went up from 26% to 28%.) The tax credit ranges are where more sales are. Houses have to be purchased before Nov 30 2009 to qualify. This is impacting sales in the low end.

This is a case of some economist forecasting a low number, and even though it's even lower than last year, people are happy that it's higher than the prediction from the Commerce Department.

2 Hardest hit areas are still hit hard. The increases were in the Midwest of over 40% and the northeast at 29%. The areas struggling are still struggling.

3 REALITY - 11% rise yes, BUT -- this is 384,000 - expected was 352,000. This is where percentages can be deceiving. This is 32000 more homes. There are over 3,000,000 homes on the market. The 32000 homes represents .0106% change in that inventory number.

4. Median home price is down this month (May to June) -- had risen previous 2 months. Price destabilization or downward trend isn't good. We need several consecutive stable months.

5. Still have an 8.8 months supply of inventory in a conservative measure.

6. Single family home sales are 21.3% lower than this time LAST year!

7. The homes sold during spring buying season close usually May-June, so this is to be expected...

8. There is also some fear of rising rates in the Fall that may be driving some buyers into the market.

9. 1 out of 4 homeowners today in default are defaulting on purpose! Once the owner owes 15% more than the house is worth, the rate of defaults that are intentional go up to the 25% level. (Chicago School of Business)

10. Still to come - 22% of homeowners have a mortgage bigger than the value of their home. We WILL see more defaults. This will push prices down. Jumbos haven't begun to show up in the markets yet. Banks will stop lending again, and we will face crisis #3.