Real Estate

Return to Article

All Clear on Home Front

Tracy Byrnes

The kids are outside again, the nervous brides finally get their grooms down the aisle and the "For Sale" signs pop up on lawns all over town.

But with the constant threat of rising interest rates, a drop in mortgage applications and a pretty flat stock market, is this the right time to buy a home? Or sell one, for that matter? Would we all be better off just enjoying the summer and waiting until things settle down in a few months?

Well, despite all the hype of the "housing bubble" bursting, the situation isn't that bad now. While some areas of the country have seen home prices decline -- such as the overheated markets of California and Florida -- nationally, home-price appreciation hasn't slowed, and it's not expected to decline, according to Zoltan Pozsar, an economist at Economy.com. Prices might flatten on the national level, but you shouldn't see too many big dips.

The National Association of Realtors is predicting that 2006 will be the third-best year in the history of real estate. That's pretty good, considering that the last two years held the No. 1 and 2 slots.

Be the Buyer

After a few manic years, it's a good time to be a buyer. "With certain markets cooling and inventories building, you don't have to rush into the marketplace," says Thomas Stevens, president of the National Association of Realtors in Washington, D.C.

You can actually take your time during your decision process. Get the home inspected first. Call in a contractor. Make sure you're thoroughly comfortable with your purchase. Anyone who bought a home over the last two years can recount stories of bidding wars on homes that were money pits. No more. Now you can make much more educated decisions.

To watch Tracy Byrnes' video take of this column, click here.

And if you're in the market for a condo, you're in an even better position. "Inventories are up for condos, because speculation was more rampant," says Posner. Investors didn't have to put up as much money to lock in a condo -- especially with new construction. But now that those buildings are complete, many investors are looking to cash out and move on.

So that means the condo supply will increase while price appreciation slows. Translation: You may be able to own that condo on the beach after all.

If you have some time on your side, the ideal buyer's market will be at least a year from now, says Posner.

That's about when the seller's desperation will kick in. If his home is still sitting on the market six months after he decided to sell it, he will be very eager to negotiate and drop that price.

And on the mortgage front, keep things in perspective. Rates may be inching up -- Freddie Mac said Thursday that the benchmark 30-year fixed-rate loan now averages 6.59% -- but the NAR does not expect them to hit 7% by year's end.

The housing boom of the past few years marks the only time since the 1960s that rates have been under 7%. Granted, you're not going to see anyone offering a 30-year fixed mortgage at 5% anymore, but you'll still be doing pretty well.

Sellers, Be Sensible

"Owning a home over the last few years has been like having a second job where all you have to do is go home and sleep," says Stevens.

That's because the cumulative average increase in the value of a home has been 33%, and even higher in overpriced areas such as Washington, D.C. Over the last three years, the cumulative increase in the value of a D.C. home has been 75%. So if you bought a $100,000 home three years ago, you made $25,000 a year just for having your morning coffee there.

Sellers have done better in the last the five years than during any time in history. And although things are slowing, you have to keep it in perspective. Sure, your neighbor might have made $100,000 on the sale of his equivalent home last year, but you're still probably looking at a $75,000 profit. So take the money and run. Don't be a "pig," as Cramer constantly reminds us all.

The market is stabilizing -- all it's doing is getting back to normal. At the end of 2005, we were at a five-month supply of inventory, notes Stevens. We're now at a six-month supply. And that's a normal market. That means less price appreciation and a steadier market for the long haul.

And that's much better than the frenetic, fast-paced pandemonium we've been in for the last few years.

Foreclosures Ahead

Let's face it: More foreclosures are coming. Far too many people squeezed themselves into McMansions with low interest-rate adjustable loans a few years back. Well, those loans will start coming due by year's end. That means the initial two- or three-year honeymoon period with that low rate is almost over, and their interest rates will start to adjust according to the market. So monthly mortgage payments might have some trapeze-artist swings.

That means you can expect to see some more "For Sale" signs by the end of the year.

And while it may be sad to see your neighbor go, it could translate into a buying opportunity for you. Folks who need to unload their homes quickly will be willing to bargain. Bring a plate of your best homemade cookies, put on your negotiation cap, and go ring the doorbell.

So enjoy May. Grab a cup of coffee and stroll through some open houses. You may be pleasantly surprised at what you find.