In a topsy-turvy housing market, it’s more important than ever to know the facts before buying or selling.
By Kerry Hannon
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From California to the Carolinas, homebuyers are snapping up some of the best home prices in decades. Sellers, on the other hand, grapple to get what they believe is a decent offer. The housing market may be on the mend. But things aren’t likely to change drastically overnight.
Jim and Karen Kahrl of Burke, Va., never did get the price they wanted for their $599,950, four-bedroom home. After seven months on the market, and lowering the asking price to $575,000, these USAA members gave up and decided to stay put. “We had tons of lookers, but no offers,” Karen says. Army Maj. Kevin Crooks, 35, faced that situation in the spring of 2008 when he received orders to move to Fort Sill, Okla., from Richmond Hill, Ga., outside of Fort Stewart. Without delay, he put the family’s three-bedroom, 1,400-square-foot home up for sale. Asking price: $189,000.
No buyers surfaced. But the move couldn’t wait. So in September Crooks and his wife, Tara, closed up the house, piled their two young children in the car and headed west.
Their home finally sold for $184,000 in January 2009. “We didn’t lower the price,” recalls Tara, who covers military issues like this on her weekly Internet broadcast, Army Wife Talk Radio. “We took what they gave us.”
While they didn’t take a bath on the sales price, they did get slammed with two housing payments for four months. Luckily, they weren’t under pressure to buy a new home. They moved into government quarters — a four bedroom home at $1,425 a month.
“It was a tough time between September and January when we were paying double,” says Tara.
“Christmas was definitely slender.”
“It was a tough time between September and January when we were paying double.”
Hope for the future?
There are glimmers that the housing market is beginning to lift out of one of the worst slumps since the Great Depression. In 2009 low home prices pushed sales higher in many parts of the country. But the encouraging news should be met with caution. Why?
The boost was fueled primarily by:
- foreclosure sales.
- a tax credit for first-time homebuyers.
- the Federal Reserve’s program of buying most new mortgages to keep rates low for mortgage seekers.
Without those supports pumping up demand, the housing market remains weak, says David Stiff, chief economist at Fiserv, a financial information and analysis firm. “There are signs we are getting closer to the bottom, but it looks like we have further to drop,” he says.
Though some experts argue the market already has hit bottom, the national median home price is forecast to decline 11.5 percent by the third quarter of 2010, to $157,707 from $178,200, according to the Fiserv Case-Shiller® Home Price
Index. Then, it’s expected to rise 4.8 percent by the third quarter of 2011.
A major factor is job losses. Though unemployment seems to be leveling off, many borrowers who have been out of work for some time are likely to fall into foreclosure. And, ultimately, that will dump more houses on the market, dragging down
prices, Stiff predicts. Hit by the recession in the auto industry, the Detroit metro area, for example, has the lowest home prices in the country.
And home prices in some of the nation’s biggest metro areas — New York City, Los Angeles and Chicago — are expected to slide further.
Prices are expected to start up again in 2011 in Los Angeles and Chicago. But there are locations, such as Charleston, S.C., and parts of Washington state, where home prices are improving. And in places that are still depressed, people like
Jim and Karen Kahrl find a way to get through it. Taking down their “for sale” sign was a disappointment, but it wasn’t the end of the world. In reality, they had no pressing need to move. They just wanted to live closer to their children and grandchildren in the
San Francisco area. And they wanted a one-story home that would be easier for Jim, who has had several back surgeries, to get around.
Instead, they retrofitted their existing home with ramps and a stair lift, and now make do with occasional family get-togethers. “It probably worked out for the best,” Karen says. “The cost of living and real estate
taxes out there are ridiculous.”
Sage Advice for Buyers If you’re looking to buy, here are some tips and traps to avoid:
- Prepare your finances. In general, your monthly mortgage payment, including principal, interest, real estate taxes and homeowners insurance, should not exceed 28 percent of your gross monthly income. And don’t overlook the variable cost of homeowners insurance from state to state. In Pennsylvania, for example, the average annual premium is $689, according to the Insurance Information Institute. In Florida, it’s $1,534.
- Consider your time horizon. Prices aren’t expected to improve significantly in most areas for several years, so think twice before buying. “Many of our military members relocate every three to five years,” says Diane Brooks, a USAA real estate expert. “If you won’t see an appreciation on your investment, it might make more sense to rent.”
- Be pragmatic. Avoid buying something too unusual, advises Bill Kuhl, a real estate agent with USAA MoversAdvantage®. “While you don’t have to limit yourself
to a cookie-cutter house,” he says, “remember that your home will be a commodity when it hits the market.”
- Be hard-nosed, but reasonable. Don’t expect a seller to slice $40,000 off a $270,000 house. Do offer around 10 percent below what comparable homes are selling for in the neighborhood. One strategy: Offer less, but be willing to pay the selling price if the seller will pay closing costs. And be willing to walk. If there are other homes that fit your criteria, don’t get stuck fighting for one.
- Set a fair asking price. If you’re anxious to sell, list your home at 10 percent below comparable homes in your neighborhood. To get attention, set your selling price at the low end of a price scale — say, $205,000,
for a $200,000–$250,000 range.
- Use online help selectively. Check Zillow.com, HomeGain.com, RealEstateABC.com, Trulia.com and other online sites that offer home value estimates. But be aware that data may be old and spotty on details.
- Be open-minded. Many buyers come in with lowball offers. But don’t be fooled. They’re probably testing the waters. If you keep the dialogue going, you just might strike a deal.
- Give and you will receive. Buyers want to think they got a steal, so make them feel like they did. Pick up the tab for some of the closing costs, dangle a cash bonus of $1,000 to a buyer’s agent, toss in new appliances, spring for repairs or pay
for a home warranty.
- Use an agent. It pays to list your property with a knowledgeable agent. Interview at least two or three agents. Request an analysis of the asking and selling prices of similar homes in the area.And agree on the commission up front — usually
4 to 6 percent of the selling price.