Despite a downward drift in the economy, housing experts don’t see home buyers gaining dominance over sellers in most communities anytime soon.
Still, economists predict that buyers should enjoy more bargaining power when bidding on a property and that multiple bids for the same home will be less likely. “These days if you ask for the moon, the stars and the sun, you might wind up with the moon and stars,” says Orwin Velz, a senior economist at Fannie Mae, a major source of home mortgage money.
Buyers in many communities should soon have time to ponder alternatives without feeling rushed into a purchase, says Frank Nothaft, deputy chief economist at Freddie Mac, another huge mortgage investment company. He advises buyers to look at many homes.
Here are several other recommendations from housing economists on how buyers should proceed in a fluid market:
– Look to real estate agents for the freshest market information. When it comes to stocks, up-to-the-minute information is just a double click away on your computer. Within seconds you can tell what the market thinks a stock is worth.
On the other hand, housing markets are “inefficient,” in economists’ jargon. That’s because information about market changes filters through the system more slowly. Also, unlike stocks of the same company, no two homes are exactly alike. They may be precise duplicates, but their settings are different. “Real estate markets are all very local,” Velz says.
As with all investments, it’s best to buy a home by anticipating the local market’s future movements. For this there is no substitute for an active real estate agent who is current on anecdotal information as well as statistical trends. “Realtors are ahead of the data,” says David Lereah, chief economist for the National Association of Realtors. “They know their own particular markets and whether, for instance, the company down the street just laid off employees.”
– Look to key statistics to augment anecdotal reports. One measure of the buoyancy of a neighborhood market is the difference between asking and selling prices. In hot markets, buyers often pay full list price or higher, and a property’s sale sometimes turns into a sort of ad hoc auction. The opposite is true in chilly markets, where sellers have to take what they can get or exit altogether.
Also, watch the neighborhood trend reflecting the number of days it takes the average home to sell. The longer the time “for sale” signs are up, the more leverage buyers have. If the target market is weakening, you might consider Velz’s advice to attach current statistics to the written offer you make on a property. This could give the sellers a dose of realism about the value of their place.
– Don’t assume that tough competitive bidding is still the norm in your area. Through much of the 1990s (and even currently in some communities), fierce battles were waged over prize properties.
“You could drive by a house in the morning, and by afternoon it was gone,” Velz says. “But that’s history in many places now. Update your expectations. Don’t use your past experience for determining what you’re going to bid.”
– Don’t be shy about counteroffers. Are you seeking a home in a community where layoffs are becoming more prevalent and job prospects are scarcer? Then your negotiating power as a homebuyer may be stronger. In many neighborhoods where sellers have been able to dictate terms in recent years, buyers are gaining negotiating power. “There are always two parties to the transaction,” reminds Nothaft.
– Consider a weakening economy as a good time to buy a unique home. Do your tastes in housing run to the offbeat? Are you willing to accept a starkly contemporary home in a sea of more traditional properties? Then a period of weakening demand for housing could be a particularly opportune time for you. Normally, unusual homes attract fewer buyers, because people tend to have conventional tastes.
“A unique home is especially hard to sell in a slow time so you’ll have an edge when you negotiate,” Velz says.
– Don’t become an overconfident buyer. Housing economists admit that the peak of the current economic cycle is over in most areas, but they don’t claim that a full buyers’ market is around the corner in all communities.
There are significant elements of strength remaining for the current housing market, which will likely endure through the end of 2001.
The expectation of falling mortgage rates, coupled with still relatively high levels of employment are two factors that should combine to cushion the economy from a steep decline. As Velz says, “We’re looking for a soft, bumpy landing.
