Summer Home Shoppers Have All The Advantages This Year
by John Adams
from the Atlanta Journal-Constitution HomeFinder
SUMMER HOME SHOPPERS HAVE ALL THE ADVANTAGES
In my experience, summer officially starts with Independence Day, so we can now let the summer home-buying season begin. No, I don’t expect this to be a record summer for resales or new construction. In fact, if previous quarters are any indication, sales will likely be anemic during these hot months.
But the savvy home shopper should take into account the many solid and compelling reasons to consider buying a house this summer. Here are some of the most convincing:
* Home prices continue to be buyer-driven across the metro area, with inflexible sellers seeing their homes sit on the market month after month.
No, the average home price in Georgia has not dropped, but some of the gains that owners had already realized emotionally never materialized. And remember that whenever we talk about an average, that means there will be some neighborhoods that do better than average and some that do worse.
Smart buyers are finding bargains in attractive neighborhoods where an above average number of sellers has decided they need to sell now. That creates competition, and price sells real estate.
* Bank-owned homes now have grown in number to the point that they represent an entire sub-market in and of themselves. And because the banks are highly motivated to be done with these “loans gone bad,” they are often willing to sell at substantially discounted prices.
Remember that the tidal wave of post-foreclosure homes has yet to run its course, and the lenders know this. They are well aware that many more troubled loans are headed their way, and that many of these will result in foreclosed homes to sell.
These lenders are almost compelled to accept any reasonable offer to remove the non-performing asset from their books, even if it means a significant loss.
* Interest rates are still a fabulous bargain.
Don’t forget that the single largest expense associated with home ownership is usually the interest you pay on the money you borrow to make your purchase. As recently as 1981, thirty year fixed rate mortgages were priced as high as 18 percent. But today, you can lock in a similar loan for well under 7 percent.
Just to illustrate the difference, if you borrowed $200,000 for thirty years at 18 percent, your monthly payment would be $3,014 monthly. That same loan borrowed at 6.5 percent results in a payment of $1,264. The entire difference between the two numbers is interest expense.
By the way, I noticed recently that, for the first time in recent memory, a meaningful discount of 0.75 percent has emerged for those willing to accept a 5-year adjustable rate mortgage instead of the safer 30 year fixed. In the past months, those two rates have been nearly identical. If you are absolutely sure you will be moving in the next 5 years, such a loan might make sense for you.
* Concessions are another way that sellers in today’s market can reward those who make offers to purchase, however disappointing.
Builders are famous for offering upgrades in lieu of lowered prices, and that practice has reached new heights in this slow selling market.
Builders may be willing to upgrade anything and everything from carpeting to woodwork, from landscaping to finished attics and basements, all for the price of a contract to sell.
And while resale owners may not have the budget available to fund such options, their motivation is no less powerful. Buyers in this market are routinely asking and getting sellers to pay for closing costs, discount points, needed (or sometimes simply wanted) repairs and modifications, and anything else the lender will allow.
Fortunately for sellers, appraisers are trained to spot non-realty related concessions, and to back them out of the appraised value of the property. In addition, lenders often limit the amount of seller contribution toward a buyers costs or expenses.
With price, interest rates and seller motivation all on the side of the buyer in this market, what danger might lurk in the shadows?
The greatest danger facing a summer shopper this season is the danger of sitting on the fence too long.
While the current situation seems lethargic, one never knows when these things will turn. I have been through real estate slowdowns in the past that reversed very quickly, and no one is suggesting that the current malaise will last indefinitely.
Know that waiting too long may have financial consequences.
If interest rates were to jump from 6.5 percent to 7.5 percent, as might happen very quickly, your monthly payment on a thirty year loan of $200,000 would jump from $1,264 to $1,398.
And while an additional $134 per month may not sound like a huge difference, it adds up when you pay it for 360 consecutive monthly payments. In fact, it’s just over $48,000.
I am not suggesting that you should go out a buy a house just because the time is right. But I am saying this: if you have been thinking about making a move anyway, you probably could not have picked a better time than this summer.
This article first appeared in the Atlanta Journal-Constitution.
