Many experts believe there may never be a better time to buy a home. There is mounting evidence that “The Best Selection of Homes at The Best Prices”, is rapidly becoming a thing of the past. Here are the most important considerations for buyers:
Top 10 Buyer Considerations for 2011
1. Emotional Appeal – It has been said that “People know the price of everything and the value of nothing”. To determine the real value of a home, every buyer should ask themselves the most important question when purchasing a home; “If I were to buy this home, what would it mean to me.” Even a better deal isn’t as important as the answer to this question.
2. Interest Rates – For every 1% increase in mortgage interest rates, the cost of a mortgage increases by $0.60 for every $1,000.00 borrowed. Over the term of ownership this can add up to 20%-30% in additional costs to the borrower.
3. Best Selection – As inventory levels decrease, the most desirable properties are being snatched up. Buyers have been so used to seeing an abundance of properties, that they are overlooking the emotional benefits of owning that “Perfect Home”. A good rule of thumb: “If it’s something they like and they have good taste, it’s a safe bet that dozens of other buyers will like that property too”. Buyers should maximize the pleasure of their purchase by avoiding being stuck with “Leftovers”.
4. Pricing – As inventory levels drop and buyers tired of waiting, the days of price depreciation are likely gone. Many markets are once again experiencing levels of activity that haven’t been seen for years. Multiple offers are once again becoming common place for highly desirable properties.
5. Pent-Up Buyer Demand – After sitting on the fence for years because of price depreciation, many buyers have grown anxious to move on with their lives. The best time to buy is before more of these buyers actively enter the market.
6. Recaptured Appreciation Windfall – After dropping in value to well below historical levels, home prices could mirror recent trends in the Stock Market where the majority of the value has been recovered in about the same time period as it took to lose the same value. Real estate is likely to recover, at least to what would be considered a more normal price, based on the average appreciation that has occurred over decades in real estate (usually 4%-6% per year).
7. New Construction or Replacement Costs – In most markets, the sales price of existing homes is significantly lower than the price to build the same home in a similar location. Once excessive inventory is reduced, new construction will recover and there will be pressure for existing homes sales prices to increase to keep in line with new home prices.
8. Rental Rates – With so many residents losing their homes, or unable to qualify for a mortgage, demand for rentals is increasing rapidly. As demand increases, rental rates could shoot up dramatically. Buyers that have opted to take advantage in lower home costs now, could experience a double- whammy as rental rates increase sharply and home ownership costs increase sharply due to rising interest rates.
9. Paper Gains/Losses – Most buyers have been so conditioned to focus on homes prices, they overlook the fact that any gain or loss from home ownership is merely a “Paper Figure” until they actually sell their home, in most cases 10-20 years down the road. At that point, the difference in 5%-10% of the price is likely to be far less significant.
10. Economic Recovery – Buyers must remember that: “All bad news is really good news to a buyer”. When sellers hear about the real estate market and economy improving, they are much less likely to be willing to negotiate a lower price for the buyer.