The 5 Things You Must Know Now
The question I hear most often from clients today is, “So, where the heck is the bottom of the market?” The question is stealing sleep from weary homeowners who have watched home prices plummet 21 percent from their 2006 peaks, evaporating more than $2 trillion in wealth last year. Meanwhile, government officials, who witnessed the U.S. housing market’s collapse tip the global financial system into chaos, are scratching their heads for answers. While Westside homeowners, by and large, have been sheltered from the real pain of the market, it’s obvious to everyone that the market has been difficullt for buyers and sellers alike.
Affordable mortgage rates, which hit record lows in January and are expected to remain attractive, are the best reason to hold out hope for an earlier-than-expected rebound. Low interest rates are a very powerful tonic for housing markets. And the changes proposed by the Stimulus Plan are meant to address both tax credits and higher conforming loan amounts. But as banks jack up their lending standards in the face of higher delinquencies, many would-be homeowners won’t qualify for the most attractive rates, blunting the impact of this incentive.
Amid lower prices and cheaper mortgage rates, 2010 will present plenty of opportunities for would-be home buyers. But with the economy mired in what may turn out to be the nastiest recession in decades, anyone purchasing a home this year should proceed with caution. Here are five things to consider before deciding whether or not to jump into the real estate market in 2010:
Buying a Home
1. Make sure your financial house is in order: Perhaps the biggest concern about buying a home during a recession is that you may lose your job shortly after closing the deal. As a result, if you’re thinking about purchasing a home this year, you should do so only if you have solid job security. In addition, banks have been raising their lending standards in the face of higher delinquencies. That means most would-be home buyers will need a FICO score of roughly 720, a down payment of at least 3.5 percent, and documented income verification to get the best mortgage rates. Mortgage money is available. However, you are going to have to align yourself more closely with the new, more prudent lending standards. SHOP FOR A BROKER, NOT A MORTGAGE, ask for references from your realtor as well as borrowers. Your focus should shift from shopping the price of the mortgage to shopping for the best broker. The broker will shop the market for you. Brokers shop lenders far better than you can, among other reasons, because they are in constant contact with many lenders, and know the niches where your situation fits.
2. Buy a home, not an investment: A lot of people got hurt in the housing bust because they bought homes as short-term investments. With the market expected to decline further this year, 2009 won’t be a good time to get back into real estate flipping. You’re better off buying for the long haul. If you’re not planning on living in that house for more than three to five years, you should consider waiting to buy right now.
3. Be conservative: Given the gloomy economic outlook, 2009 isn’t a good year to stretch your finances. If you decide to buy a home, make sure it’s a place you can conservatively afford. A good rule of thumb is that a monthly housing payment shouldn’t exceed 35 percent of the buyer’s gross monthly household income. And given the favorable interest rate outlook, buyers should target a 30-year, fixed-rate mortgage. Make sure you can make those payments comfortably. You don’t want to have to struggle.
4. Get those concessions: With so many homes on the market, would-be buyers have a great deal of leverage this year. Don’t be shy about using it: Bid aggressively against the listing price or ask if the seller will chip in for closing costs. You might even ask about a decorating allowance. Sellers are throwing in lots of extra stuff to put transactions together. The rule of thumb is ask for anything. In a market like this, you might be surprised by what sellers will agree to. Just don’t go overboard. Angering the seller with overly aggressive demands could torpedo the deal.
5. Check out the foreclosures: While the foreclosure epidemic has caused tremendous pain for many Americans, it has also created some great deals for would-be buyers. It’s a once-in-a-generation opportunity for many people. Because such properties can often be found at sharp discounts, anyone looking to buy a home this year should make sure to check out the inventory in their local market. But foreclosed home buying can present unique challenges—legal and otherwise—that are often best handled by someone with experience. So, unless you are a veteran real estate investor, you’re probably better off sticking with a professional with experience in the foreclosure market. While some buyers may make out like bandits in this market, home sellers will face a humbling challenge. With so many choices, real estate shoppers are driving hard bargains, forcing sellers to toss in perks, and moving on to the next house if they don’t get what they want. Despite the ugly conditions, home buyers who know how to play the market can succeed.
Here are five things to consider if you’re selling your home in 2010:
Selling a Home
1. Price aggressively: Painful though it might be—especially for homeowners who watched their properties balloon in value over the first half of the decade—the most effective way to sell your home in a sluggish market is to cut the price. The price can be attractive, but attractive isn’t good enough right now. You need to be compelling. A compelling price will vary from one geographic area to the next, so home sellers need to have a firm grasp on the conditions in their local market: Which direction are prices heading? What are comparable homes going for? Here’s where the experience of The Bremner Group can offer help.
2. Scout the competition: Sellers should become intimately familiar with their local market by reading the real estate section of the newspaper or browsing online listings. I reccomend to my sellers that they go a step further. Get out and actually go to all the other open houses in your neighborhood, and see what the other sellers are doing. Sellers who know their competition will have a better understanding of what kind of incentives they might have to offer to make a sale.
3. Consider staging: When preparing your house for viewing, remember that you want prospective buyers to “mentally move in”. The best way to accomplish that is to make sure the house is clean and free of clutter (rooms with too much junk may appear cramped to buyers). Start with the outside of the house: Mow the lawn, trim the hedges, and power-wash the driveway. Next, make each room in the house “Q-Tip clean”. Then, remove the unnecessary items—especially family photos and personal items—from every room in the house. You may even want to rent a storage unit for your belongings. We are not selling your things, we are selling the space.”
4. Hold an open house: Even in the age of online real estate shopping, the old-fashioned open house is still a key part of the home-selling process. With a few simple steps, property owners can ensure that they get the most out of these events. After cleaning and decluttering the entire property, make sure all light fixtures are functioning properly. Well-lit rooms are more appealing to buyers and help prevent slip-and-fall accidents that could call a home’s safety into question. You might also inject a welcoming aroma into the air by doing some baking before the visitors arrive. Smells like cinnamon and chocolate give you a feeling of home. So I wouldn’t hesitate to throw some sweet rolls or brownies in the oven. To protect yourself from theft, lock up your valuables and prescription drugs. Most important, plan to be away from the property during the open house. The presence of homeowners makes it more difficult for buyers to visualize themselves living there.
5. Make repairs: Given that the economy is slowing just as lenders are beginning to require higher down payments for mortgages, most buyers won’t have cash left over for big-ticket repairs when they move in. As a result, prospective buyers are more likely to walk away from homes with leaky roofs or broken heaters. If it’s a matter of two houses, similarly priced, [and] one house needs repairs and one doesn’t—you’re going to go with the house that doesn’t need work. So take care of serious repairs before putting your house on the market.