Home Buyers: Don’t Get Spooked

It’s Halloween Week, when seemingly everything around us is scary. Recent news reports have portrayed the housing market as scarier than a busload of zombies, arousing primal fears, but the real truth is that home buyers — that is, people who are actually serious about buying a home and not just those who are “looking” — have almost nothing to fear, despite all the recent doom and gloom in the news.  There is a surplus of houses for sale in virtually every area of the country and an ongoing market correction of new home values has rendered most residential real estate more affordable than it has been in several years.

Reduced Prices on New Homes for Sale

Home sellers have reluctantly realized that the housing boom is over. Regardless of what they may have paid for a property, it may now be worth less, especially if they bought their property within the past two or three years. In many areas across the U.S., home prices have fallen below the levels of 2005.

Supply and Demand

While this is bad news for home sellers, it means that home buyers can currently reap the best deals in years. Home prices are subject to some of the same economic factors as gasoline prices — which we all know have varied widely in recent years and can change rapidly depending on market conditions. Simple supply-and-demand economics tells us that when a commodity is hot, as real estate was a few years ago, people will line up around the block and outbid each other — often overbidding for the most desirable examples — driving up the price. When the clamor (demand) dies down, as it has over the past year or two – and especially if there is an abundant supply, as there has been in the marketplace – prices will fall measurably. That’s what is happening now.

In the last few years, many home builders produced new homes as fast as they could to meet the perceived demand and to maximize profits. Real estate investors perpetuated the trend, believing that they could buy low and sell high. And for a long time since the turn of the century, they were right. But banks often granted ill-advised loans to ill-qualified buyers, as the sub-prime mortgage crisis has made clear.

The U.S. housing market reached its peak more than a year ago (depending on where you live). In 2007, home construction has slowed to a trickle in many markets, as builders have large inventories of unsold properties, banks have tightened their lending guidelines and consumers have become wary, especially when it concerns what for most people is their single largest financial commitment.

In the fallout, new home prices have dropped measurably. Some home builders have cut their prices. Other builders are offering massive incentives to buy.

Builders Offering Incentives

It’s a great time to buy a home because the companies that build new homes understand the laws of supply and demand and they know that making a smaller profit than they might have realized a year or two ago is better than turning no profit at all. Home builders have begun to offer incentives to home buyers worth thousands of dollars, just to reduce builder inventories and to continue cash flow.

Examples of Builder Incentives

• How would you like a new swimming pool for free with your new home?
• Maybe you would rather have your new home’s kitchen upgraded with all-stainless, matching appliances.
• Or how about $10,000 off the sticker price?
• Does paying no property taxes (the builder will pay them for you) for the first year or two you live in your new home sound good?
• If the kitchen is already upgraded, how about a $10,000 landscaping credit?

These are just a handful of the incentives and enticements that many home builders and home sellers are now offering to coerce potential buyers into become actual buyers. (We have heard that some home builders are offering incentives that are worth more than $25,000, sometimes up to 10 percent of the home’s value.)

Savvy home buyers will become informed about what is being offered in the community they wish to buy in, asking these kinds of questions:

• How long are homes on the market before they are sold?
• How much have home values gone up or down in the neighborhood?
• What builder incentives are being openly publicized?
• What extra builder incentives not publicized might a Buyer’s Agent be aware of?

Home Buyers Can Sometimes Dictate Terms

In a buyer’s market, a home buyer can have a major voice in determining the terms of the sale. Unlike just a few years ago, the buyers are now calling the shots.

[Tags] home buyers, new homes for sale, residential real estate, home builders, housing market, buying a home, builder incentives, new home prices [/Tags]

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