Home homebuyer april06

homebuyer april06

April, 2006 Newsletter
+++++++++++ April 1, 2006 +++++++++++++++++++

Introduction: Resales Up, New Sales Drop
Mortgage Rate Update: Rates Up Moderately
This Month’s Tip: Negotiations in a Changing Market

Introduction: Resales Up, New Sales Drop

Welcome to the April edition of the Home Buyer’s Newsletter, brought to you by the Home Buyer’s Information Center.

Existing-home sales rose in February following five months of decline,  indicating a stabilization is taking place in the market, according to the  National Association of Realtors®.

Total existing-home sales – including single-family, town homes,  condominiums and co-ops – increased 5.2 percent to a seasonally  adjusted annual rate of 6.91 million units in February from an upwardly  revised pace of 6.57 million in January, but were 0.3 percent below a 6.93 million-unit level in February 2005.

David Lereah, NAR’s chief economist, said mild weather appears to  be responsible for some of the gain. “Weather conditions across  much of the country were unseasonably mild in January and likely  were a factor in higher levels of buyer activity, which boosted sales  that closed in February,” he said. “Higher interest rates had been  tapping the breaks (sic), notably in higher-cost housing markets since  mortgage interest rates trended up last fall, but we’re seeing signs of stabilization in the market now with the sales rebound. Home  sales should level-out in the months ahead.”

On the new home side, sales took a big 10.5% fall in February, the biggest drop in over 8 years. Sales of new one-family houses in  February 2006 were at a seasonally adjusted annual rate of 1,080,000, according to estimates released jointly on March 24th by the U.S.  Census Bureau and the Department of Housing and Urban Development.  This is 10.5 percent (±12.4%) below the revised January rate of 1,207,000  and is 13.4 percent (±12.5%) below the February 2005 estimate of 1,247,000. The median sales price of new houses sold in February 2006 was $230,400;  the average sales price was $296,700.

The seasonally adjusted estimate of new houses for sale at the end of  February was 548,000. This represents a supply of 6.3 months at the  current sales rate.

Again, like we mentioned last month, these are really mixed signals.  Buyers should keep a very close eye on their local markets to determine  how to proceed. Also, in changing markets, negotiating the best  possible price becomes extremely important. See this month’s tip below.

Mortgage Rate Update: Rates Up Moderately

Although they see-sawed a bit through the month of March, mortgage rates ended the month up moderately. According to mortgage company Freddie Mac, 30-year fixed-rate mortgages averaged 6.35%, not including points, in the period ending March 30th. Rates began the month at an average of 6.24%. The trend in 15-year fixed-rate mortgages was similar, averaging 6.00% after starting the month at an average of 5.89%.

For the year-to-date, the averages are similar, with rates rising for a  couple of weeks, then falling for a week or two, then rising again. Different economic reports, often not in agreement, can cause these fluctuations in the market when the reports are released.

For current average mortgage rates, see the rates page.

For more information on mortgages, visit the Mortgage Section

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This Month’s Tip: Negotiations in a Changing Market

It wasn’t that long ago that an extremely strong seller’s market made negotiations on a home purchase a very different affair than it had been in the past. Less than a year ago, in many areas of North America, multiple offers, bidding wars  and final sales prices thousands (and sometimes tens of thousands) of dollars over the listing price were fairly normal. Recently, though, the landscape has changed a bit in many areas as more properties compete for less buyers, and it is  taking longer for the average home to sell. These factors have combined to put today’s buyer in a much better position than they were six months or a year ago. For buyers, although we are not yet in a “buyer’s market,” it definitely is a positive development. For many sellers, adjustments to their thinking will probably need to be made.

We have always recommended a hard nose approach to negotiation from a buyer’s perspective. It is simply too easy to overpay–sometimes horrendously overpay- when you do not take the time to negotiate effectively. Even when real estate markets were booming, we recommended not getting involved in a bidding war unless it could be demonstrably proven that you could obtain the property at market value or close to market value. Thousands of buyers who threw common sense out the window and paid large amounts over real value for homes may end up holding the bag, now or later.

With the market likely in a state of flux, this is definitely NOT the time for foolhardy negotiation. To overpay in a rising market may be unwise, but to overpay in a stagnant or declining market could be financial suicide. Mistakes made in this type of changing market can take many years to overcome, especially if it takes a long time for the market to recover, as happened in some areas in the past.

Be Effective

The first key to effective negotiation is to have a game plan in place BEFORE you begin the actual process of negotiating to purchase a home. This is partly mindset and partly preparation, and is designed to put the buyer on, at the very least, an even footing with the seller. For first time home buyers, this is extremely important since the negotiations that will be taking place will be with a seller that has purchased and owned a minimum of one home (the house they are selling) or, perhaps, multiple homes. In all probability, then, the seller’s personal experience alone will act as their game plan. By leveling the playing field, through mindset and preparation, the buyer is better assured that their interests will be represented.

The Game plan: The Mindset

Purchasing a home is a very emotional experience. The fact that there is negotiation involved further complicates that emotional experience. It is  important to remember though, that a home purchase is also a financial experience–a very expensive one. The joys of purchasing can rapidly erode if financial errors–such as paying far too much for a property–are made. The negative repercussions from such a mistake can go on for years, far overshadowing the emotional joy at the time of the purchase.

What qualities compose a good approach to this mindset? First, you must be prepared and willing to let a property go if it does not fit financially. This applies both to the properties price in relation to its true value and in relation to your overall budget. You need to be able to say three, simple words: “No, too much” instead of getting caught up in the euphoria, offering to pay more and more, ending up paying too much. Second, you must understand that you cannot negotiate from a position of fear. The notion that says “we will NEVER get a house. We can NOT less this one get away, even if it is a good bit more than we want (or can afford) to pay” has cost many buyers a lot of sleepless nights trying to figure out how they possibly can make their budget work.

The Game plan: Preparation

The key to the preparation phase of your game plan is working to get yourself very familiar with the current state of the real estate market in the area in which you are interested. This includes having a good feel for the health of the market: Is it still a seller’s market (which means prices will tend toward the high end), a buyer’s market (which means pricing will be more competitive) or somewhere in between. This will give you a good overview of how much bargaining power you should be able to wield. Obviously, the more the conditions trend toward a  buyer’s market, the more strength you will have in negotiations.

The most important information that you can have at your disposal is a CMA–a Comparable (or Comparative) Market Analysis–on any  home in which you have an interest. A CMA will give you the exact  figures on what similar properties are actually selling for in the neighborhood. With this information in hand, you can make  adjustments (either up or down) to determine fairly accurately  what a specific home should be worth. For example, a home with more square footage will be worth more, a home that needs maintenance and repairs will be worth less. Your Real Estate Agent, if they are representing you as a Buyer’s Agent, should be able to develop a CMA for you for any property.

Armed with these 2 important pieces of information–market conditions and the CMA–virtually any buyer should be able to develop a clear strategy for negotiation: How much to offer, how to raise their offer if need be, what a maximum price should be and, most importantly, when to walk away if necessary.

You can find more information on negotiations on the site here:   Negotiation
as well as a CMA example here: 

Next Month’s Topic: The Steps to Buying a Home

The Home Buying Checklist

Many of our visitors have said that one of the most valuable aspects of the Home Buyer’s Information Center is the Buying Checklist, where they can make sure that all the bases have been touched. You can find the checklist here.

As always, if you have suggestions for improving the  site, or topics you would like to see addressed in  this newsletter (or, if you have used the Home Buyer’s  Information Center to successfully purchase a home), drop us a quick line here.

A special thanks to all those who have written to let us know  that they have found the Home Buyer’s Information Center a  helpful resource in their buying process.

Have a great month and good luck in all your endeavors!

The Team at the Home Buyer’s Information Center