Friday, December 27, 2013

Home Buyers: Pull the Trigger or Toss in the Towel?

My son wants to talk about buying a house. Would I advise him any differently than I would a stranger? No, not really. Below is a list of what to consider.

1. If you're on the fence right this second, get off. Interest rates will go up in 2014, and so, probably, will prices.

2. If you'll be looking in 2014: Rates will likely go up. Interest on the ten-year Treasury, the biggest mortgage rate influencer, hit 3%, which it hasn't seen since 2011. I won't get into the boring stuff about Fed bond purchases and all that, but if rates hit 6%, I believe the market will stall.

3. All things being equal, prices should move up. That's good, because more sellers will poke their heads above water and be incentivized to sell. That means more inventory. Prices may edge up, but they won't be volatile and nerve-racking.

4. Buyers can afford a unique (to them) monthly payment. The amount is based on the mortgage amount (principal) and the interest rate. Since the payment has to stay constant, the interest rate and price can't both go up. That's arithmetic.

5. That being the case, buyers should not feel pressured. They'll be able to make sensible, unstressed decisions and should not give in to their real estate brokers, significant others, or HGTV.

6. Caveat to #5: Hot neighborhoods excepted.

7. Sales of existing homes have been off for the last three months. The so-called housing market recovery may not be a strong as advertised. Pay attention to these numbers when formulating your negotiating strategy. My view is that the housing market recovery is over-hyped, as real estate markets always tend to be.

8. If the market does stall out a little and you're looking at new construction, don't be shy about asking for builder concessions in the form of upgrades, added features (swindow coverings, loft shelving, e.g.), rebates for closing costs, etc. They're unlikely to lower the price because of their financing arrangements, but they absolutely hate carrying inventory.

9. A takeway: You get 50% of what you ask for. You get 0%of what you don't ask for.

10. It may seem arcane and insiderish, but watch and see if the private secondary mortgage market makes a comeback. Right now, the U.S. government is the biggest player (ok, Fannie and Freddie are technically private, but they're in receivership and being propped up buy Treasury). The return of private mortgage investors signals confidence in both the real estate market and the economy. Rates would stabilize, more credit would be available and everyone would feel happier about things.

11. The final takeaway: Do your homework before looking for houses and getting all starry-eyed. Don't sweat over what you can't control anyway. My sense is there's a home you want at the price you want to pay out there.

12. Final Takeaway 2.0: Negotiation is not about charm and making people like you. It's about leverage. Being willing to walk away is enormously powerful. Take care in creating your package so you can do just that.