In residential real estate, 2009 arrives much the same way that 2008 did: via a rocky road with deepening potholes. While more home buyers are swooping in and picking up great deals and sales are slowly increasing in many markets, the ongoing excess of inventory of foreclosed homes continues to depress the market.
While potential buyers are now getting very low mortgage rates, they are also facing much tighter credit standards and demands for significantly larger down-payments. And we haven’t even started absorbing the financial fallout from adjustable-rate mortgages slated to ratchet up in 2009.
No one can really say quite when this downward spiral will cease. If former Fed Chairman Alan Greenspan and current Chairman Ben Bernanke were surprised by the depth of this housing crisis, who among us can accurately make the call?
There are growing sentiments out there that this darkness directly precedes a new dawn. A late-2008 consensus survey by PricewaterhouseCoopers and the Urban Land Institute, based on input from more than 600 industry experts, projects the U.S. residential market should start rebounding appreciably in 2010.
But what about now? Well, this new economy has added some new wrinkles to home-buying and home-selling strategies, while re-introducing some of those old-school favorites like sound fundamental fiscal practices. So here are nine tips for home buyers and nine for sellers to help them survive, and hopefully thrive, in the transition year of 2009.
- Cash is the new king
- Negotiate extras … and more extras
- Start a down-payment fund
- Determine your own home-buying budget
- Clean up your credit score
- Research equals savings
- Don’t overlook neighborhood issues
- Watch for foreclosed-property inventory to loosen
- Look for other looming opportunities
Tips for home sellers
9 tips for homebuyers in 2009
1. Cash is the new king. If you can spare the cash, brother, it has a heck of a lot more buying clout now. In the past, we’ve tried to persuade people to seek out more liquid investments for their cash on hand and grab an easy-to-get, low-interest mortgage. Now, with the equity markets depressed at the same time that mortgage loans are hard to find, the tables have turned. Those wielding ready cash in a recession are always ahead of the game.
2. Negotiate extras … and more extras. This is a no-brainer in the current market. But while sellers continue to offer throw-ins such as built-in appliances, flat-screen TVs and even cars, the best throw-ins are always the ones that take monetary form. Think paid closing costs, a year’s worth of property taxes, repair credits and paid homeowners association dues, to name only a few.
3. Start a down-payment fund. The goal should be to amass 20 percent. Set monthly savings goals. Shore up the family budget. Work an extra job if you have to. The pain will precede a gain: lower house payments and higher equity in the future.
4. Determine your own home-buying budget. Do this before you start talking with lenders. They will tell you what you qualify for, but only you can determine what you can really afford. Be realistic and work in a buffer for contingencies and negative life events. And instead of facing possible piecemeal rejection locally lender by lender, shop for a mortgage online and see what several competing lenders have to offer. But don’t expect appreciably less-stringent terms online.
5. Clean up your credit score. You’ve heard this one before. But it’s more important now than ever if you hope to get home financing in ’09. Correct reporting-agency errors that may be dragging down your score. Pay your bills on time. Pay down active credit cards but don’t close out paid-off accounts.
6. Research equals savings. Agents will almost always tell you that the time to buy is now. But do your own research. Go online to scour newspapers and other local sources, and look for housing inventory backlogs, the average “for sale” time that the home is on the market and average selling prices. Also be wary of the number of area foreclosures and major-employer layoffs.
You’ll get a better sense of how much negotiating clout you’ll really have and which way the market is moving. Information is power — in your case, purchasing power.
7. Don’t overlook neighborhood issues. If and when you do qualify for a mortgage, don’t overlook these important issues in your exuberance: quality of schools, traffic noise, upcoming zoning issues, neighborhood stability, home turnover, crime levels and the presence of any sex offenders. This is where a strong, veteran agent can assist.
8. Watch for foreclosed-property inventory to loosen. Banks will soon be under greater pressure to cut their losses on property they own through foreclosure and to increase revenues. With a smaller percentage of distressed homes selling at auction, banks are loaded up with more of these “nonperforming assets.”
In major markets, more agents are specializing in prying loose so-called REOs, or “real estate owned” by banks. Again, cash on hand talks loudest.
9. Look for other looming opportunities. Can’t get a loan? The financial markets should begin to untangle at least a little bit in 2009. The newly Fed-fortified banks will, or at least should, start moving that money. They are banks, after all. But don’t expect a return to “zero down.”
9 tips for home sellers in 2009
1. Price correctly from the get-go. Unless you’re living in a handful of relatively stable U.S. markets, don’t start out too high-priced just to “test the waters.” Your backup plan of adjusting on the fly may prove futile. Keep that window of opportunity open from the first time the “for sale” sign appears on your lawn. The first 30 days a home is on the market are when it gets the most attention from potential buyers and their agents.
2. Fix earlier pricing mistakes. If you’ve already made the above pricing mistake, consider taking the home off the market and repositioning it for later entry. If you simply persist with that original, now-discounted offering and keep dropping the price as the months go by, lowball buyers and their brokers will be waiting in the wings to see how low you’ll go next month. If you do take it off, make some relatively simple cosmetic improvements such as new paint and landscaping, then list it again, but at the right price this time.
3. Looks do matter. Don’t underestimate the importance of curb appeal. Not only is there an acute price war going on out there, there’s also a beauty contest being staged. You may be strategically located in a quiet cul-de-sac, near great schools, great health-care facilities and fabulous shopping, and you may have easy highway access for that morning commute, but unless your exterior is well coifed and in sparkling condition, other offerings will outshine it. If your home’s outside doesn’t pass the drive-by test, the interior won’t, because it will not be viewed by serious buyers, who are already off to view the next home on their list.
4. Don’t overdo it. By contrast, if you go too far in improving your place, you likely will not be able to recoup your remodeling investment. Don’t over-invest to the point where your home greatly exceeds competing properties in your price range and neighborhood. And keep colors schemes neutral for best sale potential.
5. Don’t be an ambiguous seller. Either you are going to sell or you aren’t. Why waste everyone’s time, including yours? If you manage to fetch a decent offer with a test listing in this market, commit to sell. You may be able to buy a better replacement house at a disproportionately lower price with so many steals still out there.
6. Be an energy miser. A low- or mid-grade energy retrofit will make your home greener and more marketable and it won’t bankrupt you. The selling point of “seeing thousands of dollars in energy savings down the road” is a timely one.
Add a programmable thermostat, re-insulate the attic and water heater and caulk around doors, windows, eaves, edges and joints to better seal them. Consider having a professional energy audit performed. They’re relatively cheap. At least one Web site, Home Energy Saver, offers a do-it-yourself audit tool.
7. Know all of your options. If you are among the thousands of homeowners who have lost significant value in their homes, are upside down on your note and can’t refinance, know what your next step may be.
And, if you can’t get your mortgage agreement modified, negotiate an alternative payment arrangement or find a buyer to simply assume your payments, then you should be aware of the more drastic alternative open to you.
For more information, read Bankrate articles on short sales, intentional foreclosures, pre-foreclosure sales and deeds in lieu of foreclosure — all extreme options for getting rid of your home and large mortgage payment.
8. Become a landlord. This approach is best for people who aren’t too far behind on their payments. Yes, those newly reset adjustable-rate monthly payments are often higher than the rents you can fetch. But the rental market has made a comeback with so many foreclosure victims out on the streets.
Give first priority to possible lease-option or lease-purchase tenants. In a lease-option, a renter pays more that the established monthly rent for the right — but not the obligation — to buy the property later. A lease-purchase pact is similar, but it obligates the renter to buy.
Unless you are able to carefully screen renters and doggedly look after your property in any of these scenarios, don’t become a landlord.
9. Hold fast: Don’t “panic sell.” Unless you owe more than what your home is worth or face a job change, relocation or a divorce, health crisis or other major negative life event, then wait until next year or the year after even, if at all possible. Current conditions are not permanent.