Is Now The Time To Buy A House?

At first this may seem like an odd question, especially given the front-page headlines of the past few weeks. But the reality is that selected properties in slow markets can be terrific buys.

To start, it's important not to be scared off by headlines. The Nation Association of Realtors reports that 93 metropolitan statistical areas showed price increases for existing homes in the third quarter of 2007 when compared with a year earlier. In comparison, 54 metro areas had declines.

But a little caution is in order because these reported figures may not be realistic. For instance, in my community reported home prices show little change during the past year. The catch is that "reported" home prices do not reflect discounts offered by owners including repairs, upgrades, appliances and so-called "seller contributions" that can total $30,000 for a $500,000 home.

What does it mean for buyers?

• Homes are more affordable than they've been for the past several years. The reason is that there are now discounts and price drops in many areas that did not exist at the height of the market. Combine reduced effective prices with interest rates which are low by historic standards and the result is the ability to either buy more house or to better afford a smaller one.
• Some regions are devastated. If you've always wanted a condo in Miami or a place in Las Vegas, Dallas, Colorado, Ohio, Michigan and a growing number of areas in California, you've got a huge and growing number of choices.
• The situation is likely to get worse before it gets better. Many authorities believe that foreclosure rates will increase in the next few months, meaning that purchasers will have even more leverage in the marketplace.

If there really is a window of opportunity for buyers, it's a window which needs to be treated with caution. Lower prices -- by themselves -- may not be a good enough reason to purchase at this time. To buy wisely you need to look deeper. Here are important issues to consider:

First, you have to line up financing. You must speak with lenders before looking at houses so your financial capacity can be determined. Once you know how much you can borrow and how much you can afford, you will then know the price range to search for homes. Doing it the other way -- finding a great house and then looking for a loan -- will not work if the property is not affordable.

In the process of looking for a lender be aware that the marketplace has changed. You'll do best if you're looking for a residence and not an investment and if the financing you need is less than $417,000 -- the conventional loan limit. Also, some of the loan practices of the past few years are now largely gone. Expect a return to older, traditional underwriting standards.

Look into FHA financing and fixed-rate mortgages. FHA loans have liberal qualification standards and great terms. Fixed-rate loans are a hedge against future interest increases, a protection many ARM borrowers now wish they had.

Second, buy for the long-term. It makes no sense to buy real estate low and sell lower. We don't know that today's prices are as low as the market will go. Alternatively, if you expect to own your home for many years then what happens in the coming few months is largely irrelevant.

Third, work with a buyer broker. There are many questions to negotiate in a real estate purchase, it's unlikely you can win every issue but you'll have the best shot at getting what you really want by using an experienced broker who knows how to bargain and works for you.

Fourth, look at the long-term prospects for an area. For instance, is the population growing? Are new jobs being added? Are state and local budgets balanced or in the red? A growing population means more housing demand while an expanding job base suggests a larger pool of qualified buyers. As to budgets, when governments are in the red they will want to raise taxes, a cost that cannot be avoided or paid down.

Fifth, buy smart. For instance, buy in the path of future growth, consider existing homes but also look at distressed properties such as foreclosed homes and real estate owned by lenders, or "REOs". An experienced buyer broker can show you a range of options and explain the pros and cons of each choice.