Stop Timing the Market and BUY!

By DeeinAustin™

U.S. interest rates fell in February, creating a more brisk real estate market in Austin and other areas of the country.

Sorry to report, but rates are rising almost every week. Buyers are now faced with a common dilemma in today's buyer markets. They often  ask...

"If home prices are still going down, should I wait to purchase until later this year?"

The short answer is no. It's not smart to time the market. My advice to first-time, move-up, and relocating buyers: buy when it's the right home at the right time for you.

THREE REASONS WHY NOW IS A SMART TIME TO BUY

Each market, even in the same city, is a little different. Always talk to your local neighborhood or market expert for an update. Here's at least three reasons why Spring 2008 is a smart time to buy.

1. Flexible loan options are available. Buyers with "ok" to good credit can obtain 100% financing, asset-based loans, and put little money down.

2. Interest rates are great. Buyers who were on the fence have jumped on the ability to obtain a good interest rate.

3. Less competition from other buyers. In my market, home buying season is in full swing by May. The market heated up in February, but there is even more competition among buyers during summer months.

A true buyer's market creates a win-win scenario: As  interest rates increase, your payment will be lower if home prices decrease. Here's a flyer that illustrates this point.

FINAL THOUGHTS ON TIMING THE MARKETING

You'll always lose when you try to gamble with real estate. Even the best stock market investors use data and criteria to decide best times to buy or sell. Speculating, buying only when the market is "hot" (i.e. a seller's market), and failing to do research are tops ways to put your investment at risk.

In any market, at any time, evaluate your area with a local expert to make an offer that's right for you.

Comments

[Santa Fe Real Estate]

Interesting post. I agree with you for the most part, however, it does seem likely that prices will continue to go down for the forseeable future. For this reason, I would say if someone isn't sure whether they are ready to buy or not, it may not be bad to wait a couple months. For a client who is clearly ready to buy, though, why wait - prices are already low!

[anonymous]

Feb. was slow this year, as Sam Chapman mentioned here (http://www.austinrealestateguy.com/blogs/sam_chapman/archive/2008/03/04/austin-home-prices-flatten.aspx).

In response to your 3 points:
1. Save money so you have skin in the game
2. Interest rates are about the same (minus Jan) for the last 12mths, and they are far from being bad - the 0.6% jump in the flyer is only due to rates dropping very heavly in Jan. thanks to the Fed's action and positive market reaction. The turmoil is back on for now, so rates are closer to where they've been for the past year or so.
3. Agree - as long as sellers get realistic and want to sell.

There are very good tangible buyer benefits to waiting for prices to drop even further.
1. Lower price, so if you didn't save (tsk tsk) you can price your property more competitively if you must sell <5yrs after buying
2. Lower prices, so you can negotiate with the tax appraiser - the example in the flyer could save you about $700 a year in taxes
3. Time to save for a down payment or repair fund if you can manage to get 100% financing.
4. Probably the biggest reason to wait - upside possibility of refinacing when rates go down increases (ie makes sense to refinance from 8% down to 6%, but probably not 7% to 6%).
5. Time allows some neighborhood to stabilize. With record foreclosures in both Travis and Williamson counties, its nice to know that you won't have lots of empty houses for neighbors (or at least know that’s the case when you buy). The flood of downtown condos is about to increase availability and expose other possible issue (transportation, parking, etc) - its nicer to be on the trailing end instead of paying more for a house, being surprise and forced to live with the issues. Sorry Dee, but ditto for East Austin here. Mueller sure seems pretty (nice designs!), but crap $480k base for a Streetman home seems high give the lot size which I bet the city subsidizes.
6. Hopefully your income will rise while waiting, thus allowing the possibility of a nicer house.

Don't get me wrong, if buyers have funds, are ready for a house, will treat the house as home and not an investment, go ahead and look. Although, human nature makes it pretty difficult not to worry about declining home values.

[Dee Copeland]

Excellent Points! Thank you for the comments.

I guess from my point of view, if we keep worrying about home prices falling, we're going to miss out on good deals. In my areas, February heated up. Perhaps it was just the press abotu interest rates being lowered, but buyers came out of the shadows. Maybe it's because I work with investors and out of town clients who see value in our market. Steve Crossland said he was swamped as well.

I don't think prices will keep dropping (in Central Austin at least) so much that it makes that big of a difference on your tax bill. If someone wants to wait, they can, but seller are really starting to get realistic. Homes that sat on the market for 6-12 months are now selling at pretty good rates.

[Robert]

Forgive me, but the following point seems like a monumentally bad reason to wait:

4. Probably the biggest reason to wait - upside possibility of refinacing when rates go down increases (ie makes sense to refinance from 8% down to 6%, but probably not 7% to 6%).

Why would you wait for the interest rates to go up, just in the hopes that they would eventually go down and you could refinance? As a buyer, I'm looking directly at whether the current rate is acceptable to me, if it isn't can I buy it down with points? If neither of these hold true I'm not buying, but I'm definitely not going to hold off buying in hopes interest rates will go UP.

[anonymous]

Robert,
Historically, (and as an example from Dee's flyer), there is an inverse relationship between home prices and mortgage interest rates. High mortgage rates drive prices down since they mean higher cost of borrowing. I wasn't clear in pointing out this relationship - and Dee didn't directly say it either.

Sure, you can buy down your rate via points, but I don't think that's the best use of your $'s. The only way that points truly payoff is if you stay with your current loan for a long period of time - I believe it’s usually about 7yrs until BREAK EVEN. If you decide to refinance, you're out your $'s you used to buy down your rate.

I won't be dumb enough to say you'll be able to refinance in a few years, as was the common advice during the housing boom, but there is a likely hood that rates are going to climb and fall back to current rates as the credit crisis works itself out. No guarantees, but inventory will likely go up, mortgage rates will go up, prices will go down, qualify will be harder, however, for a well educated buyer with good credit and cash for a down payment, what's not to like if you don't need a home or are discouraged with the current market.

Austin is usually late to the game, and I believe that's the case currently. I am playing devil's advocate, because I think balance of messages is important.

[JonB]

1. If you need a 100% loan, it may not be a good time to buy. Google "down payment" and start reading up.

2. Buying an overpriced, depreciating asset is never a good investment, even if you could get a 0% interest rate. How do you know if a house is potentially overpriced? For starters, compare it to what you would have to pay to rent it. If it's more than 200x monthly rent, it's probably overpriced. If it's between 160-200x monthly rent, now you're talkin'. For example, I currently rent a house for $1900. Similar homes were selling for $460,000 two years ago, with $200/mo HOA. Add in property taxes, and I'm obviously coming out way ahead. When prices get down to the $320k range, then I'll think about it.

3. Google "greater fool theory". The housing slowdown is just getting started, and patience will be richly rewarded.

And whatever you do, find out what your maximum monthly payment may be under any loan agreement, and make sure you can pay it! Even if you can find a lender these days stupid enough to lend you more than you can pay back.

[Robert]

Thanks for the clarification.

Normally I wouldn't advocate buying down points either, but in my current situation we plan on staying at least 10 years so it may make sense for us.

[anonymous]

Jon B-
I think your multipliers are still too high, 100-120x is about right, especially for Texas. Even for Cali, I wouldn't venture above 150x.

Robert - I'd really advise against buying down points. Things change and the true likelihood that you'll stay put for 10yrs is pretty low. You'd probably be better investing the pts buy down dollars or looking at a 15yr mortgage.

-Anon

[Corntrollio]

This is ridiculous. People would be much better off waiting for lower prices even with higher interest rates. There are numerous bloggers (who are NOT real estate agents) who have crunched the numbers on this. You can get a lower payment for the same house.

[Dee Copeland]

I think you're under the impression that we haven't crunched the numbers. As an agent, my job is to inform people of what's happening in the market and help them make good decisions.

How long should you wait? I don't know about anyone else here, but my crystal ball is faulty.

1. No matter the market, always, always, always make a good decision based on your circumstances.
2. Do you realize that prices are increasing in many areas of Austin? It's a fact that the average sale price in Austin has steadily increased each year since 2003.

I work mostly in Southwest Austin, where homes sell in under 30 days on average.

Heed this warning: You can wait all you want, but you won't necessarily get a lower price. In fact, if you wait until Summer, you're going to see more competition on the best listings.

If you're in East Central (especially in 78723) or Soco (78704), you're going to get a better deal now than last year. Still, good homes aren't taking longer than perhaps 60-90 days to sell.

Each buyer can make a decision on what they're comfortable with, but I think there are some valid discussion points here.