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Borrowing Strategies · Market Forecast · The Foreclosure Factor

Homebuyer’s Guide 2011

How to Get the Best Deals Now

Home prices have fallen 29.5 percent on average since their peak in 2006, interest rates are historically low, and plenty of foreclosure properties are on the market. However, prices will fall even further, lending standards are increasingly strict, and foreclosure properties come with hidden costs.

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Your local real-estate agent might try to convince you that this is a great time to buy a home. And to a large extent, he/she is correct. Home prices across the United States have fallen 29.5 percent since their peak in June 2006, according to the real-estate website Zillow, which collects data on the housing market. Interest rates remain near historic lows. The average rate on a 30-year, fixed-rate mortgage stood at 4.61 percent at press time, and the average rate for a 15-year, fixed-rate mortgage was 3.80 percent, according to Freddie Mac, which is a public mortgage lender.

But this same agent likely won’t tell you about all of the pitfalls that await in today’s housing market. The home that you buy today might be worth $50,000 less 6 months later. If the home is a foreclosure home, you might learn that it needs a new roof after you buy it, and you might not qualify for a good mortgage rate—if at all.

To negotiate today’s housing market, you need more patience and more willingness than ever before to step away from what you might consider to be a dream house. Above all, you need absolutely stellar credit.

NEW SALES PITCH. The most recent numbers that are from National Association of Realtors (NAR) are good if you’re a buyer. According to NAR, the sales rate of existing homes—including condominiums, cooperatives and single-family homes—fell 6.3 percent from March 2010 to March 2011, and because of that, housing prices continue to fall. NAR reported that the national median sales price of all types of existing homes stood at $159,600 in March, which is down 5.9 percent from March 2010.

Nobody knows just how far home values will fall in the coming months. Another wave of foreclosures will hit the market in 2012 and 2013 when banks start to pursue the estimated 4 million homeowners who are delinquent on their mortgage payments. Banks haven’t pursued these homeowners yet, because banks are overwhelmed with foreclosure cases. In general, it takes 90–150 days after a missed mortgage payment for a bank to begin foreclosure proceedings. (This year, for instance, Massachusetts extended the waiting period to 150 days before a lender can begin foreclosure proceedings.) But it isn’t unusual for homeowners to live in their home for a year without making a mortgage payment before foreclosure proceedings kick in, says Joe Gross, who is the president and owner of Qualified Mortgage in New York and often sees this happen.

When banks finally clear their backlogs, another round of low-priced foreclosure homes will flood the market, Gross expects. Consequently, patient buyers who aren’t aiming for a specific home hold all of the cards. “I certainly wouldn’t rush into buying at a price that I’m not comfortable with,” Gross says.

Real-estate agents aren’t convinced that housing prices have hit bottom, either. HomeGain, which provides free online resources for homebuyers, in March reported that 39 percent of real-estate agents and brokers predict that home values will decrease during the second half of 2011. If the prediction holds true, there isn’t much reason for buyers to hurry and take advantage of low prices in most of the United States.

However, prices actually are rising in a few pockets of the country. For example, the median price of homes in Washington, D.C., climbed 2.7 percent in February 2011 from a year earlier, according to S&P/Case-Shiller Home Price Indices. Prices also increased in suburbs that are outside of Los Angeles, New York and San Diego. Buyers who are in these popular, high-density areas might want to be more aggressive about jumping into the market now while prices still are relatively low.

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