Why does the real estate market work in such crazy ways? This past spring, the market was flooded with First Time Homebuyers hoping to take adantage of the $8,000 Federal Tax Credit for first time buyers. The deadline to find a home and put it under contract was April 30, 2010 and originally, the transaction had to close by June 30, 2010. That has since been extended to September 30, 2010.
The media started to talk about the economy coming out of recession. Builders and developers began buying land and renovating and improving existing structures. Locally, developers were back out on the prowl looking for multifamily homes and apartment buildings with the hopes of converting to condominiums. Many developers were able to buy a multifamily in the fall, renovate and do a condo conversion, and subsequently sell all the units in the first half of the year.
The increase in demand created by the tax credit found many buyers shut out by May 1st. Many had experienced and lost multiple offer bidding wars. Many had experienced similar heart breaks similar to those experienced at the height of the real estate market of the mid 2000-2010 period. Many walked away empty handed feeling it was just not meant to be this year.
But why? Was an $8,000 tax credit really the only reason worth buying a first home? Why end your search and leave the market now? Below are 4 reasons why now is an even better time to buy a home.
1. You’re still renting. You’re still paying your landlord’s mortgage, why not pay your own? You’re still living under some else’s roof. You are still throwing money away each month with little to no tax benefits. You still have no opportunity to enjoy in the appreciation in home prices over time.
2. Demand is lower. As mentioned above, buyers were routinely losing the properties they coveted because someone else either beat them to the punch, paid more than them, or had more money to put down than they did. The tax credit created demand, gobbled up all the good supply and put pressure on prices. In many cases, the increased demand caused prices to climb by more than $8,000. If that was the case, then what good is the tax credit. It was great for some sellers who have been waiting he last couple of years for a good time get out. It seems to reason, that if you could get the home you wanted, at the price you wanted AND you could take advantage of the tax credit, then the tax credit was great but not otherwise. If the demand caused prices to increase more than the amount of the tax credit or it caused buyers to settle for a home they didn’t like as much as another, then it wasn’t necessarily a great reason to buy on it’s own.
3. The Fall Market. With the exception of last year when the government first introduced the tax credit, the fall season usually shows some somewhat predictable trends. Many sellers (and their real estate agents) perceive the post-Labor Day market to be more like a mini spring market. However, this is not necessarily the case. In fact, if you look at historical trends, the fall is often the time of the year where the supply of housing inventory actually grows and sellers have a difficult time selling (especially unrealistic sellers).
Experienced and knowledgeable real estate professionals often times monitor the housing supply and compare it with demand. The housing supply can be measured by the absorption rate (which is basically the rate of houses coming on the market versus the rate of houses going off the market) or by months of inventory . When more houses are coming on the market than coming off, the absorption rate slows, the supply increases, and therefore, there is a higher number of months of inventory. Months of inventory indicates how many months it would take at current activity levels to absorb all of the available housing units if not one more additional property were brought on the market (which we all know is unrealistic).
For serious buyers, this should be a great time to buy a home. It is true, more homes come on the market. It is also true that relative to the number of new homes on the market, there is usually not a similar spike in the number of buyers. This creates opportunity for a serious buyer. There is more to choose from. There is usually more negotiating room, and there is less pressure to make a quick decision. Serious buyers have a lot of opportunity. Between Labor Day and Thanksgiving, there is usually a build up of supply. Between Thanksgiving and New Years, many sellers take their property off the market in anticipation of waiting until the spring market causing the supply to decline. Then, at the beginning of the calendar year, the whole cycle starts over again.
4. Interest Rates. During this past spring market and during the time the tax credit was available, interest rates were at least a half point (0.50%) or more higher than they were as of last week. Last Tuesday, interest rates on a 30 year fixed conventional mortgage for top tier buyers was at 4.375% whereas during the spring, interest rates were 5% or more (not that that’s a high interest rate). Therefore, based on the difference between 5% and 4.375, a buyer who owns their home for 5 years, would benefit from buying now based on interest rate alone than if they bought during this past spring, all other things equal and got the tax credit.
Based on all of the above, a buyer looking to buy now rather than this past spring can probably benefit from more choice, more negotiating room, more motivated sellers, and lower interest rates, while still benefitting from tax deductions for mortgage interest and real estate taxes, and a higher probability in the long run for price appreciation.
If you are thinking about buying a home now or in the future, go to our website www.prudentialunlimited.com and search for homes by map or search parameter, sign up for one our well-known free, monthly First Time Homebuyer Seminars or sign up to meet with one of our experienced buyers agents to receive free representation on your home purchase.
