Friday, July 28, 2006

Wake Up Buyers -- Deals Abound

It's not a buyers market officially in a lot of areas, but it's now starting to favor buyers after years of transactions where buyers had to escalate prices by the tens of thousands and nix home inspections, appraisals and the like. Thus, my advice to buyers -- get out there and catch a deal while you can.

All the indicators keep pointing to a healthy, vibrant real estate market in most cities around the country. Slowing down, doesn't mean dead, it just means, well, slowing down.
In the last five years, several markets have created an astounding amount of job growth, which is the first indicator and supporter of a robust real estate market. Washington and its Virginia/Maryland suburbs lead the way in the six markets that created more than 100,000 jobs in five years:

Washington DC: 369,000
Miami: 253,000
Phoenix: 221,000
New York: 157,000
Los Angeles: 155,000
Houston: 118,000

Economic forecasters predict that in the next four years, the Washington, D.C. area will create 40 percent more jobs over that period than were created in the last four years. With that kind of growth, why the slow down in the market? It's for a multiple reasons:
Rentals are cheaper than owning. In the markets above, appreciation upwards to 50 percent priced or shocked some buyers out of the market. Thus they turned to renting instead, hoping to wait for the market to slow down or slip back.

"The rental market is very good right now," says Leonard Wood, an apartment and condo builder from Atlanta and chairman of the National Association of Home Builder's Multifamily Leadership Board. In an e-newsletter from NAHB, Mr. Wood said, "Over the past three years, there have been thousands of rental units converted and sold as condos and, at the same time, few new rental apartments were being built. This leaves us with a supply-constrained market while demand is growing."

Rising mortgage interest rates. Part of the economic cool is orchestrated by the Federal Reserve's moves upward on interest rates. A growing economy can turn into an inflationary economy -- which damages buying power for homeowners and consumers of all products alike. Thus interest rates are raised to slow down the economy. As interest rates move up, buyers are edged out of the market.

Consumer confidence. A recent Associated Press report pointed out that consumers are up and down on the economy. "Consumer confidence, which reached a four-year high in April, lost ground in May," AP quoted Lynn Franco, director of the New York-based Conference Board Consumer Research Center. "Apprehension about the short-term outlook for the economy, the labor market and consumers' earning potential has driven the Expectations Index down to levels not seen since the aftermath of the hurricanes last summer."

The challenge for home sellers and buyers is that economic forecasts many times are driven by the "feelings" of people and investors, rather than reality.

Here are the facts: Jobs "grew" last month. The Expectations Index was the second highest ever. Interest rates are still historically the lowest they've ever been. We are nearly at full employment. Fear, many times, drives a market, rather than reality. As a homebuyer looking for a house to live in or as an investment -- look to the facts.

When a market levels or cools -- this is when the smart consumer can really get his or her money's worth. How would you like to buy a house at a 5 or 10 percent discount? It's happening now in markets around the country. Sellers are still mopping up from years of equity growth, but they have to move now and are willing to negotiate downward on their asking prices.

(Sorry sellers, you're not going to like this next paragraph.) Buyers -- name your price. If the asking price is $500,000 -- start at $20,000 or $30,000 below. Start somewhere and get the ball rolling. Then start your list of add ons: home inspection, home warranty, closing costs (some loan programs allow up to 6 percent), and more. Don't be bashful.

My word to the sellers -- don't be offended. If your house has been sitting on the market for 60, 90 or 120 days -- consider that any offer is a good offer. Let the negotiations begin.

Published: June 23, 2006

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