Should buyers take the plunge this spring?

May 14, 2012 | Comments Off on Should buyers take the plunge this spring?

Just as the spring selling season is nearing, there are some encouraging signs that it might be time for buyers to dip their toes in the housing pool again.

Pending sales are up, inventory is down and some economists are predicting an end to the housing crash this year. What does this mean for home shoppers? How should it shape their strategy? We’ll ask the experts to weigh in.

In this installment of Buying Advice, we’ll also look at how best to navigate the purchase of a short sale. We asked our readers who have bid on these properties to share their experiences and advice, and we consulted a short-sale negotiator for her tips on landing one of these distressed bargains.

What should buyers expect this spring?
Falling home prices have made most buyers understandably nervous about pulling the trigger on a purchase. Why buy before the market hits bottom, right?

The latest numbers showed that the housing market isn’t quite there: S&P/Case-Shiller’s 20-City Composite Home Price Index fell 3.9% in the 12 months ending in December, and price declines escalated at the end of the year. The bad news was widespread, with 18 of 20 metros posting declines. Miami and Phoenix were the only markets to pick up at the end of the year, and Detroit was the only city to post an annual uptick.

So why should buyers get off the fence?

The good news is there’s really not much further to fall, says economist Paul Dales of Capital Economics. Case-Shiller’s report showed prices dropping faster at a time when housing prices typically do decline. Prices continued to drop at a slightly faster rate at the end of the year, but Dales says they won’t be dropping much longer.

“There are compelling reasons to believe that the end of the housing crash is finally in sight,” Dales says.


That’s because housing prices — now back at 2002 levels (2000 if you adjust for inflation) — are now below “fair value,” or what market observers consider justified relative to incomes and market demand. Home prices are 10% below rents and 24% below disposable per-capita income.

The economy is stronger, banks are more willing to lend and mortgage rates are still hovering near historic lows.

And there are already signs that demand is coming back. Contracts to purchase existing homes neared a two-year high in January, rivaling the period before the expiration of the first-time homebuyer tax credit, according to the National Association of Realtors. Pending sales increased 2% in January over the previous month and 8% over January 2011. That figure also suggests that home sales will have increased again in February after ticking up in January.

That’s what agent Jessica Riffle Edwards says she is seeing in her Wilmington, N.C., market. “My company had 200 more contracts for over $28 million more … this January versus January 2011,” says Edwards of Coldwell Banker Sea Coast Realty. She says she is once again seeing multiple offers for properties at different price levels.

Signs also indicate that a fair amount of excess inventory of housing has been wrung out of the market in the past year, which is good news for sellers but could mean buyers have a little less to choose from and a little less authority.

The inventory of existing homes for sale declined 21% in the year ending in January, bringing the supply to 6.1 months, the lowest level since April 2006. Of course, analysts say this not only was a matter of buyers snapping up foreclosure bargains but also had a lot to do with people taking homes off the market because of sluggish demand and falling prices.

More houses should hit the market in spring, analysts say, including a large number of bank-owned, or REO, properties that were held up in processing last year. With these distressed properties padding supply, prices should remain low for buyers this season.

Moreover, 51% of agents recently surveyed by Coldwell Banker said that sellers are more willing to price their home competitively this year.

Dales, for one, says he doesn’t expect “significant and sustained” price increases until 2014 at the earliest.

The good news is that most buyers probably won’t lose much equity with a spring purchase. If you’re one of the millions facing rising rents, buying could be a smart move, provided you’re willing to stay in the house for a while.  



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