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What Buyers should do in Emerging Buyers’ Markets Print E-mail
Monday, 11 September 2006

Buyers don't quite yet hold all the cards, but they aren't smirking behind the hand they hold without reason.

Economic conditions are poised to give buyers more homes at lower prices this fall and winter, and as luck would have it, it's that time in the annual buying and selling cycle when more motivated sellers are more open to negotiations.

Housing's current plight and its role as an economic cornerstone was evident the week ending September 8, when stocks fell for at least two consecutive days after Beazer Homes USA, Hovnanian Enterprises and KB Home warned of growing cancellations and spikes in the supply.

That same week, a mortgage rate breather with six consecutive weeks of rate declines appeared over as Bankrate.Com first and then Fannie Mae reported rates were up albeit slightly.

But you really needn't look any further for what's ahead than the recent flurry of forecasts from the usually conservative National Association of Realtors.

NAR's latest existing home sales report on Aug. 23 said July home sales dropped 4.1 percent from a year ago, as the median price of single-family homes rose only 1.5 percent and the condo median fell 1 percent.

On Sept. 1, the trade group's Pending Home Sales Index, based on pending sales of existing homes was down even more, 16 percent lower than July 2005.

NAR dropped somewhat of a bombshell days later on Sept. 7 in a monthly forecast revising down earlier predictions on home sales, due to rising inventories and high home prices. Existing-home sales are now forecast to fall 7.6 percent by year's end, still the third best year after the last boom years 2004 and 2005. New-home sales should to drop further, 16.1 percent and make 2006 the fourth highest on record. NAR projected housing starts to fall 9.6 percent this year.
"A year ago we had record home sales and tight supply with buyers bidding over the asking price. This year sales are slowing, homes are plentiful and sellers are negotiating. Under these conditions, we'll probably see prices dip temporarily below year-ago levels as the market works through a build up in housing inventory," said David Lereah, NAR’s chief economist.

Learn the game. Obtaining general knowledge about the home-buying process and the real estate market is a relatively easy task, but buyers who feel a competitive edge tend to leap before they look. A glut of information available on the Internet, from free real estate industry-sponsored seminars and workshops and through a vast library of real estate guide books can give you an edge.

Check the table. Real estate markets are local, at that means so is a buyers' market. It can be designated by a small community, larger region or greater geographic area. A buyers' market is typically spotty occurring in some neighborhoods and not others or first in one area and then spreading to others. In any event, a buyers' market tends to include high inventories, slow appreciation, flat or falling prices and more sellers than buyers. The area might also suffer from general economic distress. Part of your homework should include learning the boundaries of your buyers' market. The larger the area, the greater your bargaining power.

Don't deal from the bottom of the deck. In a buyers' market, buyers who don't educate themselves about prices and markets tend to low-ball sellers and ask for too many concessions. Even in a buyers' market, that will only alienate the seller, especially those less motivated with top-value homes. The seller will simply look elsewhere for a more reasonable buyer.

Don't give away your hand. Paying sellers' market prices in a buyers' market is a common mistake buyers make, especially at the onset of a buyers' market. The mistake could leave you with a home that immediately loses value. Home buyers should make the same price checks a seller makes to price it right -- get comparables, track sale prices in your shopping area, use the local newspaper, online listing and for sale sites and other sources, to keep tabs on asking prices. Also visit open houses. Use a real estate agent schooled in the history of market trends and statistics.

Play smart. Buy the least expensive house on the best block. Buy into the least expensive neighborhood in the best community. Buy into the least expensive city in the best region. The cheapest home in a neighborhood, community or region in transition will give you the greatest return on your investment, especially when the market rebounds.

Play with a full deck. Don't let a false sense of power overcome you. Even motivated sellers aren't going to wait around for your money to show up. Get your credit report checked an in order. Get your loan preapproved. Lock in your mortgage rate. Don't shop for a home without them.

Play for keeps. Buy because you need a home, not because it's a buyers' market. Speculators and short-term investors are bailing out for good reason. It's also a keepers' market.

Play another game. Renting now and waiting out the market is a gambit, but so is buying a home right now if you don't think you can stay put long enough to weather the change. Renting could pay off, over time, in a buyers' market that hasn't bottomed.

Edwina Baniqued

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