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Market Conditions
Chances are you are already
very familiar with the ‘micro’ variables that affect your offer on a new
property. Generally these are things
like:
House size
Neighborhood
Location
Amenities
Condition
Resale value
But have you taken the time
to look at overall market conditions.
These are factors that are generally out of your control. But don’t despair. Simply because they are out of your control doesn’t mean that you
cannot have an understanding that can give you an advantage over others in the
same position.
The Renaissance scholar
Machiavelli once said stated that fortune to a
torrential river that cannot be easily controlled during flooding
season. In periods of calm, however, people can erect dams and levees in order
to minimize its impact. Fortune seems to strike at the places where no
resistance is offered, as is the case in Italy.
There is a lesson here, even
after all of these years for potential homebuyers. When things are raging as they often are in what is known as a buyers
market there is very little and you should just enjoy the ride. On the other hand when there is a seller’s
market you have less control and you should prepare yourself for when things
are raging.
What is a buyers market, and
what is a sellers market? Here is a
brief explanation.
Seller’s Market
Suring a seller’s market basically there are
more buyers than there are properties.
This means that the moment a home goes on the market there will be
many offers immediately. The
amount of offers and their seriousness then affect the price of the
home.
In these instances a home will often go for more
than the asking price, and even a couple thousand more dollars on your
offer can be the difference between getting the home of your dreams and
having no home at all.
Buyer’s Market
Obviously the Buyer’s market if the
opposite. This occurs when there
are far more homes for sale than people who are willing to buy them. A buyers market I a little more complex
than a seller’s market. Many
people, unless they are in dire straits will not sell their home if market
conditions are poor.
If they do have to sell, they may only get a few
offers a month, and even then they will be less than the asking price. In
this situation you must really know how to negotiate. It is also very important to know why
it is a buyers market. Is there
something wrong with the neighborhood?
Are there any planned developments that may decrease the resale
value of the home? Toxic waste
spill? These are things you must
know.
However, often the market is
a combination of these two factors. This is known as a steady market or a
transitional market. In this case, any
number of factors can affect the price of a home, and you’ll need to do even more
research to determine what course of action to take.
While things in the real
estate market can change at the drop of a house key, today, things are
generally very good. Even as the
economy faltered after September 11, 2001, the real estate market was one of
the only bright spots on the economic horizon.
As people began to feel insecure, homes provided them some measure of
security. This of course created a
seller’s market.
But, as the seller’s market
boomed, it also became a lucrative market for building homes. Therefore more and more new cheap homes
flooded the market and sellers became desperate. This created the buyer’s market that w have today.
Naturally there are other
factors involved as well, and we’ll take a look at those.
Interest Rates
This one is a big one. Today interest rates have been lower than they have been in
years. Therefore, for first-time
homebuyers, mortgage payments represent the largest cost of buying a
home. This means that simply
paying for your home is your biggest cost, not paying the interest. Many banks will offer a fixed rate
mortgage. This means that no
matter what happens to interest rates, you will continue to pay the same
rate.
However, it also means that if rates down
further, you will be paying more.
Luckily there are also split long and short mortgages. This means you can pay half of the
mortgage at a fixed rate, and the other half at flexible rate that changes
with the market.
The price of renting has also gone up lately, so
in most cases it is cheaper to begin paying a mortgage than it is to keep
on renting. The previously
mentioned new housing developments often have some of the best interest
rates, sometimes even one or two per cent below the bank rate.
Housing Prices
Housing prices can be deceiving at times. For instance, house prices have not
changed that much over the past couple years. While this is great in itself it also has some added
benefits. Those came companies
that are building massive new housing developments trying to keep up with
each other in market that doesn’t favor them. This translates into homes with better layout and design,
bigger yards, included amenities and a plethora of addition features like
fireplaces and pools.
This also means that home sellers in many areas
have been forced to renovate their existing property to increase it
value. While this really means
building a pool, you will often find a new kitchen and a deck or some
fencing thrown into the mix. Not a
bad deal at all.
Decline in Renting
As was mentioned before, renting has become a
worse and worse option in this new housing market. In most cases 37% of renters could
afford to buy a starter home. This
means that the price the price of the mortgage, plus the applicable
interest is still less than their monthly renting agreement.
There are also other factors in home ownership
that are making it easier these days to buy a home as an alternative to
renting. Firstly, stable heating
costs and property taxes are lower.
Also, if you do not need the space you can live in the home, rent
out the rest and pay for your mortgage that way. It means preying on the 37%, but they may not need to buy a
home anyway.
Down Payment
Often the down payment is the biggest hurdle in
buying a new home. This can be as
high as 15% depending on your situation.
However, as was mention, as new housing developments are springing
up everywhere, down payments are becoming lower and lower. Often you can get a down payment for as
low as 5%. This is often the case
for first-time homebuyers.
First-Time
Many banks are also beginning to offer
introductory rates to people who may not be buying their first home, but
who have previously demonstrated that they are responsible homeowners who
were forced to sell their home for other reasons. This could include selling as part of a
divorce, or selling because of a new job opportunity.
Long-Term Investment.
No matter what course of
action you take, always know that buying a home has proven to be one of the
best investments you can make. No
matter what market conditions are people need to live somewhere. Here are some more interesting facts:
One in four (23%) would consider taking a second
job in order to be able to buy a property
16% say that they would consider buying with
friends
Almost a fifth (17%) would consider buying a property
in a poor condition which needed renovation
One in seven (14%) would try to borrow their
deposit from their family
11% would move to an area where they didn’t know
anybody so that they could afford a home
One in ten (10%) would take in a lodger
42% expect prices to keep rising over the next
two to three years
One third of people (34%) who currently pay rent
anticipate their monthly outgoings would increase when they get a
mortgage. One quarter (25%) of those who live with their parents
anticipate mortgage payments would be more expensive than paying rent.
Despite this adversity, potential first time
buyers cannot wait to get their own home. Over half (56%) of those
questioned think that the time it will take them to buy is too long. This
figure rises according to expectations of the time-scales involved in
buying a property - 58% of those who think that it will take between one
and two years to buy consider this to be too long; 70% of those who think
that it will take from three to five years also consider this to be too
long.
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