Buy now while rates and prices are low: It’s been your mantra for the last year at least. You may feel like a broken record sometimes, but we both know that now really is the perfect time to buy, that the market will change in the near future and that our clients’ purchasing power will drop as rates and prices begin to rise. The question is, how do we instill that sense of urgency in potential buyers who are coasting, waiting to see if costs will drop further?
Creating a sense of urgency can be accomplished by playing on clients’ fears, it’s true. But rather than take a negative approach, it would be better to show them the huge opportunity that is right in front of them — and then pull out some recent statistics that indicate this favorable buying climate is not going to last forever. In fact, it may already be slipping away.
Fewer Choices The number of homes on the market has dropped precipitously over the last 12 months. According to the Wall Street Journal’s MarketWatch, “even hard-hit areas” that suffered foreclosures and housing gluts “have seen substantial decreases in for-sale inventory.” The National Association of REALTORS® says that national inventory was down 20.4% in May as compared to numbers from a year earlier.
It’s true that inventories haven’t dropped everywhere, but this looks like a trend that will continue to spread as foreclosures slow down and sellers see other homes selling for more and more money.
Rising Prices Which leads us to rising housing prices, also popping up in diverse markets across the nation. After seven straight months of declines, the S&P/Case-Shiller composite index of U.S. home prices rose 1.3% for the month of April 2012. It doesn’t sound like a lot, but it is an indication of coming change. Home values rose in 18 of the 20 major markets the Index follows. This is a positive sign for home sellers and real estate agents — but borrowers need to move quickly before the prices creep up any higher.
Mortgage Rates Creeping Higher According to BankRate, the two recent dips in the 30-year fixed-rate mortgage were followed quickly by jumps in interest rates. The 5/1 ARM is fairing much worse, with rates nearly double the low reached at the end of May. True, we’re talking tenths of percentage points here. But it’s worth reminding clients that every percentage point lowers their purchasing power by about 10 percent. In practice, that means at 5 percent, a homebuyer can pay around $1,600 per month on a $300,000 loan; but at 6 percent, $1,600 per month gets him a loan of $270,000.
We can’t stress it enough: it’s still a buyer’s market and it won’t be this way for much longer. As the economy recovers, the housing market will right itself and a once-in-a-lifetime opportunity will be missed. Urge your clients to act now so they don’t miss out. And please feel free to send them my way so I can show them the numbers specific to their own unique circumstances and our own area. I look forward to helping you close more deals!