You Know the Tune

The downturn of the housing industry has been music to a buyer’s ears. You know the tune: Low interest rates, a first-time homebuyer tax credit, falling home prices, a vast selection of foreclosed properties… The problem is, buyers have enjoyed the party so long that they think the music will never stop. But it will. All good things must come to an end and in this case, the end will come sooner rather than later. As a buyer, you have to ask yourself, “Will I have a place when the music stops?” You will, if you’re informed and you’re prepared.

Low Interest Rates

Interest rates are being kept at artificially low levels by government stimulus efforts. In a nutshell, the Treasury has committed to buying $1.25 trillion dollar’s worth of bonds. This artificial demand has kept the price of bonds up. Since yields move opposite to the price, a high bond price means a low yield. Low yield, low interest rates.

When the demand drops, the price drops. It’s the old supply and demand thing. When the price drops, yields go up. High yield, high interest rates.

The important thing to know is that the bond-buying program ends at the end of the first quarter: March 31. Many economists believe that rates could climb by a half point to as much as a full percentage point higher. You could see rates as high as 6.00% by mid-April. (More background at CBS News: How High Will Mortgage Rates Go?)

A one-time feel-good tax credit is wonderful but it masks the single biggest concern that SHOULD be on a buyer’s mind: Interest rates. Nothing cuts into buying power like a higher interest rate. (Read Great Rates)

Remember, you make money when you BUY not when you sell. YOU control the buy side, the sell side will always be an uncertainty. When you lock in a low rate, you’re locking in a better profit down the road.

First-time Homebuyer Tax Credit

Speaking of FREE money… how about $8,000 bucks? No matter who you are, $8,000 dollars still buys a lot of sandwiches.

If you haven’t been keeping up with the news, if you sign an agreement to buy your first home by April 30 and close on the deal by June 30, you probably qualify for a FREE $8,000 dollars courtesy of government stimulus efforts. The music stops on April 30. (Realtor.org: Tax Credit)

Short sales and other kinds of distressed properties take 3-4 months to close. This means that all those great deals that buyers have been dreaming about no longer make as much sense in just a few weeks from now.

Falling Home Prices

Ask an experienced Realtor^® and they’ll tell you that in Northeastern Massachusetts, home prices are NOT falling. They’ve stabilized and are on the upswing. That’s great news for sellers, not so much for buyers. Again, it’s a supply and demand thing.

The fact of the matter is, there are a whole lot more buyers out there than there are sellers. Inventory around these parts is tight. If they can help it, sellers avoid putting their homes on the market during the holidays. And then they wait out the cold months of January and February. And then they wait until prices firm up. And they wait… and wait… and this puts pressure on buyers and guess what? Home prices go up!

Today. Right now. In Essex and Middlesex counties, inventory is being snapped up like it’s going out of style. There are multiple offers and bidding wars. Buyers are losing properties by offering too little, too late. And then they have to settle for second best.

The “Falling Home Prices” music has already stopped. What you read in the news is for national AVERAGES that take into account some seriously hurting parts of the country like Florida, Nevada, Michigan, et al. In the Merrimack Valley, getting enough inventory is the hard part.

Foreclosed Properties

There’s no doubt that foreclosures are out there but they’re subject to the same laws of supply and demand that all the other houses are. There are bidding wars and multiple offers on these, too. Plus, they have the added burden of taking 3-4 months to close, the generally poor condition they’re in, and the lack of certainty that your offer will actually be the one that the bank finally decides to accept once they get around to sifting through the pile of offers on their desks.

Foreclosures are for investors, not for primary homeowners. Investors flip a house in such a short amount of time that interest rates don’t have time to fluctuate so much that it’s a major concern to them. They’re looking for a bottom-line profit and they generally don’t qualify for a tax credit. Competing against investors in a market that’s starting to heat up doesn’t make much sense if you’re looking for a place to call your own. (How to Flip a House Like an Investor)

A Sense of Urgency

It’s hard to imagine that there are still folks on the sidelines about buying a home but Realtors^® see it all the time. They give buyers a list of possibilities, suggest and show them the best of the bunch, and still, the buyer keeps looking. If they knew the kind of hangover that’s in store for them when the party’s over, they’ll want to act sooner, rather than later.

Can you imagine? Higher rates at the end of March, no more tax credit, foreclosures not being the sweet deals that they used to be, and home prices heading up with each passing day!

If you’re a buyer and you need help finding a home, please write to Brian X. Murphy. If you’re a seller, the inventory is desperately needed. Please CALL (978) 852-6006 TODAY!