Buying in a Soft Housing Market

Everybody knows the housing boom is over in most parts of
the country. But what does that mean for people who are thinking about buying a new home?

Is a soft market a good time to buy? Or is it a time when it's
smarter to just sit on the sidelines, and wait and see where things are headed?

Here are some practical thoughts you can add to your own analysis of whether to shop, buy or hibernate for a while.

Let's look at both sides of the equation:

First, slumping real estate markets also go by another name — buyers' markets. Boom real estate periods, by contrast, tend to be known as sellers' markets because most of the advantages are with sellers, not buyers.

Unlike the boom years of 2003-2005, home sellers and home builders today no longer have the upper hand. They can't expect double-digit price increases year after year. Or long lines at sales offices or open houses. Serious buyers are fewer in number and a whole lot slower to sign on the dotted line.

Builders have to sweeten their packages of concessions in buyers' markets — offering incentives that they'd never consider during the boom years.

Many builders also offer attractive financing packages to make their houses more affordable in buyers' markets. Often builders have special relationships with large mortgage lenders or they own a mortgage subsidiary themselves. That puts them in the position to create mortgage programs and financing solutions for buyers that would never have been possible during the boom years.

Now let's look at the reverse perspective.

There's no question that softening real estate markets can look a little scary. Nobody can tell you for certain where real estate prices will go in the coming year. Nobody can tell you exactly where we are in the real estate cycle. Are we close to the bottom of the post-boom correction? Or is there still a ways to go?

Most economists, along with the Federal Reserve Board, forecast that the boom cycle will be followed by a year or two of flat prices, possibly slight declines, followed by a gradual resumption of the upward cycle. We are well into that pattern right now.

Looking at the cyclical ups and downs of real estate during the past seven decades, only in markets where local unemployment rates are high or rising — and where mortgage money comes with high interest rates — do housing values suffer significantly in downturns. Otherwise, the historical pattern has been for values to flatten out or go slightly negative for short periods before rebounding and resuming their normal upward movement.

Although some local markets are facing employment problems and layoffs this year, job growth in most parts of the country – and in Richmond – is solid.

So where does this all take us? What's the bottom line?

Any way you look at it,

• We're in a market where buyers have the upper hand and the overall economic risks look reasonable. That was not the case just two or three years ago.
  
• Mortgage money is affordable and plentiful — big plusses for buyers.
  
• The best real estate bargains almost always occur in buyers' markets. Prices and terms this year won’t last long and you may be sorry you missed the opportunity a few years down the road.
  
• If you truly want or need to buy a home, the equation is more positive than it has been in several years: lower prices, more homes to choose from and more flexible sellers.
  

You may want to take a cautious approach and not plunge into a purchase while the cycle is still in flux. On the other hand, you may want to lock in a low price and low mortgage rates sooner rather than later.

But either way, here is my suggestion: shop and research what's available in the communities where you seriously want to buy one day. Get a good grasp on what's selling, at what price, with what features and on what size lot.

Kenneth R. Harney writes an award-winning, nationally
syndicated column on real estate ("The Nation's Housing") for The Washington Post Writers Group. The weekly column currently appears in approximately 90 newspapers across the United States. Harney, who heads his own consulting firm based in Chevy Chase, Md., is also managing director of the National Real Estate Development Center, one of the country's most-active sponsors of professional education conferences for real-estate attorneys, developers, syndicators, mortgage executives and public agencies.

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