Spring is in the air. And homebuyers are on the prowl.
But finding a home won't be easy. Most buyers face a seller's market, with increased competition, higher prices and a tight supply of homes. Savvy customers, however, can still nab that dream home by acting fast and knowing the market.
"Spring is the strongest season. The good weather helps, but many families with children prefer to make the move during the summer vacation months so they don't disrupt the school year," says Lawrence Yun, senior economist for the National Association of Realtors.
Indeed, low mortgage rates are keeping consumers shopping. The average rate on a 30-year fixed mortgage was at 6.82% during the week ending April 26, according to the Mortgage Bankers Association of America. Demand is up, with a 9.2% jump during the week ending April 26 in the MBAA's mortgage loan applications index, a seasonally adjusted measure of loan purchases.
Supply, however, is limited, with a 4.8-month supply of existing homes for sale on the market, according to the NAR. This means if no additional homes are put on the market and sales continue at the same pace, supply would be depleted in less than five months. Six months of supply is considered normal, Yun says.
"Overall, there's a mild seller's market nationwide," says Abdullah Yavas, professor of business administration at Penn State University, who adds that markets in New York, southern California and Washington, D.C., are the toughest. "It's really region-specific because it's driven by local economic factors, like job growth."
Strong pricing trends are an indication of a seller's market. The NAR confirms that New York, New Jersey, Washington, D.C., and Sacramento, Calif., are tough markets, with the median home price of an existing single-family home up more than 10% year over year in the fourth quarter of 2001.
In New York's Nassau and Suffolk counties, the median price of an existing single-family home rose 23% year over year in the fourth-quarter of 2001. "It's been crazy. After Sept. 11 it got a little quiet, but in March and April we're seeing multiple bids, full-asking-price bids and even overbids on homes," says Molly Newman, a real estate agent with Corcoran Group in New York City.
Despite the seller's advantage, homebuyers who follow these five tips might get the house they want without overpaying for it.
Tip No. 1: Get Preapproved
Before you check the classifieds, get a loan preapproved. By securing financing in advance, you'll know exactly how much you have to spend, narrowing your search, while also showing sellers you're a serious buyer. "And if you're preapproved, you won't bid more than you can afford," says Ray Brown, co-author of
Home Buying for Dummies
. "It's common to see people go beyond their financial ability in a seller's market."
Don't settle for a loan prequalification, which estimates how much you can borrow without guaranteeing a loan. "Those are called pulse loans, because everyone with a pulse can get one. Preapproval of a loan is best," Brown says.
Tip No. 2: Know the Market
With a preapproved loan in hand, ask your real estate agent for a comparative market analysis, or CMA, which shows the prices of similar, already-sold homes in the neighborhood. Buyers need this data because sellers often underprice their homes to drive up prices. "It makes people think there's a great bargain. But the realtor is just trying to encourage more bidding," says Shari Steiner, author of
Steiner's Complete How to Move Handbook
Homebuyers should understand the local market before bidding. Just because New York is in a seller's market doesn't mean everyplace else is. Markets in Nebraska, Iowa and Illinois are weaker than those in the rest of the country. The median home price of an existing single-family home in the St. Louis area fell 3.3% year over year in the fourth quarter of 2001, according to the NAR.
Tip No. 3: Consider the Alternatives
Depending on the market, simply eliminating one room can save money. "A lot of young couples are looking at six-room apartments instead of seven-room apartments, making do with less," says Newman, the New York City agent. "The average price of a classic six-room is between $1.2 million and $2.2 million. But the average price of a seven-room is $2.75 million. That's a lot of change."
Tip No. 4: Be Aggressive
Once you've decided to buy, be prepared to act fast to fend off other bidders. "Eliminate that buyer's reluctance. Know what you're going for and go after it. Because the inventory cycle is so short, it could be months before you see that home again," says Pat Lashinsky, vice president with zipRealty, a national online real estate agency.
One way to speed up the process is to know what trade-offs you're willing to make before buying. Make a list of must-have features and prepare to compromise. "It's not always possible to find the perfect home," says Lashinsky. "Be willing to trade off that island in the kitchen if the rest of the house is perfect."
Tip No. 5: Use Time Wisely
Many homeowners wait to sell their homes before buying a new one, a strategy you can take advantage of by being flexible with when you close the deal. First-time buyers are usually the most flexible because most rent their dwellings and can leave when they wish. "Allowing them time to find a place for themselves might be the point that makes the deal," Newman says.
The converse is true when homeowners buy first and sell later, which makes them want to close as quickly as possible. "Time is as valuable as money," author Brown says.
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