Monday, May 20, 2013

Is Now a Good Time to Buy?

When I was still a licensed real estate broker, I hated the question, "Is now a good time to buy a house?" Why? Because of the nature of real estate brokers. Too many of them are house hawkers and not house sales persons.

The whole real estate scene made me really, really nervous when I received my broker's license in 2006. I'd been away from the market for a while and was amazed--no, stunned--at the mortgage products available and the way everyone in the business was pushing home buying. From banker to broker, from Wall Street to Main Street, it was a can't-lose proposition.

Real estate brokers in particular pushed and pressured buyers in myriad ways. One of my favorites was making sure buyers got the message on home inspections: "We always recommend a home inspection, but you need to know that there are many buyers out there  competing with you who will waive this right." Another one was, "Prices are going through the roof, and if you want your offer accepted, you need to pay $10,000 over the asking price." These are just two examples.

Come 2008, and that same broker who pressured a buyer to pay $300,000 for that three-bedroom cutie was now telling the same person with the same home to short sell it for $240,000.

To be fair, brokers were responding to market realities. At the same time, wittingly or unwittingly, they were helping create that reality. And this phenomena underscores the problem in a prospective buyer asking a real estate broker if "now is a good time to buy a house." The answer will almost always be yes.

Why: It's mostly because the broker doesn't get paid until the transaction closes. When  home sells, the listing agent and the buyers' agent split the commission. No close, no dough. It's natural, then, that a real estate broker will look out for his or her self-interest.

So, how do you know if it's a good time to buy? My advice to prospective buyers is to separate the emotional part of home buying from the arithmetic part. The arithmetic is relatively easy--just get market data on the neighborhoods you're interested in. My choice is Redfin, but Zillow, Trulia and other popular sites can help. Caveat: I'm finding Zillow's "zestimates" unreliable.

You can also ask a real estate broker (one should give you the information at no charge, but expect to be working with her or him). And there's always a risk that the broker will filter the information.

As for the emotional part--that's just something people need to deal with as best as they can. Buyers need to really think through the emotional part and compartmentalize it, or the sales process will take advantage of them. For example, if you've been looking at homes for months, getting beat out, getting worn out, and finally have an accepted offer on a home, would you overlook a construction defect discovered two weeks before the deal closes and you've already given your thirty-day notice to your landlord?

In general, though: Is now a good time to buy a home?

If your goal is to sock your money into a house with the expectation that you'll get your money back, or even make a little bit, when you sell, then probably not, at least in most markets. Certain niche and micro-markets defy this statement. And no one knows what the international, national and local economies will be like in five, let alone ten, years from now.

But the real estate market is Baby Boomer driven. Boomers were a generation of families wanting the traditional suburban home, and they could always sell to someone. Right now, if you buy a three-bedroom home in one of many suburbs sprawling throughout any city in the U.S., you have to ask yourself who you will sell it to. Boomers are opting for smaller homes and are even looking assisted living joints in the eye. Family formation and other demographics are against a profitable sale.

You'll need to look at your personal circumstances, your local market and--most of all--your reasons for wanting to own a home. Using the ideas listed above, you can take control of your situation and determine your own answers.

And if you do end up buying a home, you'll be perfectly happy and probably come out just fine, as long as you keep your expectations realistic.