July 16, 2007
Investors who time any market hope to buy low and sell high, but homebuyers have a trickier time knowing when to sit on the sidelines and when to jump in. The reason? There are several… Buying a home is one of the largest financial investments a homebuyer will make. Transaction costs are expensive enough that homeowners remain in their homes approximately six years before trading up or down. As the recent buyer’s market shows, homes aren’t liquid, and sellers may not find buyers at the price and in the time frame that they prefer.
On the other hand, homeownership provides significant benefits including property rights, tax benefits, quality of life, appreciation, and equity.
Since two factors move markets — fear and greed — it’s easy for buyers to be overanxious to buy in a seller’s market and reluctant in a buyer’s market. In a seller’s market, prices rise, sellers hold firm, inventories are short and days on market are short. In a buyer’s market, buyers are fearful that home prices will either flatten or drop below what they paid, causing inventories to rise, days on market to increase, prices to drop, and sellers to sweeten deals.
If buyers pay attention to housing news, they can be discouraged: interest rates are near year-ago highs, builder confidence is down, and some predict that housing will drop in value for the first time since 1968.
So is it the right time to buy a home?
Here are a few factors for you to consider:
According to a recent article, “When The Housing Rebound Comes,” by George Mannes for Money Magazine, the time for buyers to jump in is when conditions improve. Mannes suggests that buyers look for four signposts: declining inventory (preferably under 6.5 months of inventory on hand); houses selling faster; Realtors opinions of local market conditions growing more favorable; and signs that sellers are less desperate, such as fewer incentives and homes selling closer to asking price.
For some buyers, the lesson that it’s time to buy is a hard one. They may wait so long that the home they hoped would go down in price sells to someone else. They have to start their search over finding that the remaining homes don’t compare to the “one that got away.” They may wait for interest rates to drop, and find that they stubbornly stay at higher rates. They’re knocked out of the neighborhood and price range they wanted to buy into and find themselves looking at homes with fewer features, less square footage, or more distance from work, family and friends.
When those scenarios happen, buyers learn that there’s an opportunity cost for waiting.
If you’re a buyer, you sadly realize that to get the home you want — at both the price and interest rate you want — will be nearly impossible. If you’re lucky, you’ll get two out of three. So, if you’re waiting to see what other buyers are going to do, you’ll soon find that once buyers move collectively, they will either drive prices down or drive them up. If prices are down, but likely to recover, do you really want to compete with other buyers on the way back up?
In other words, the price of feeling more comfortable about buying is inevitably paying higher prices and having less to choose from.
So here are some surefire ways to tell that it’s really time to buy:
- You found the home you really want and you can see yourself living there.
- It’s affordable.
- You can get a reasonable loan.
- It will serve you and your family for years to come.
- You’re not looking for perfection.
- No home is perfect.
- You’ve given up trying to beat the market.
- You’re comfortable with your compromises, whether it’s location, size, price, features, or condition.
- You’re confident the home you’ve chosen is desirable enough that you will be able to sell it in any market.
Best of luck in your home search!
Image courtesy of Getty Images Royalty-Free Collection.
Tags: homebuyer, Real estate, timing-the-market, waiting-to-buy