Whether you’re buying or selling – or both – now is a good time to make a move, according to Pat Mertz Esswein, who in her role as Associate Editor of Real Estate for Kiplinger’s Personal Finance Magazine over the last nine years has been routinely checking in with real estate agents and regional economists about the dynamics of their local economies and housing markets in order to report on how home buyers and sellers can respond accordingly.
Esswein partnered with Lisa Gerstner, another Associate Editor who covers personal finance topics – primarily banking and credit - for Kiplinger’s September cover story.
Editor Janet Bodnar proclaims, “The housing revival is real. Home prices and interest rates are rising but still reasonable, and that’s good for both buyers and sellers,” before explaining how she had her doubts about moving forward with the story in light of rising mortgage rates.
Curious to see how what I’ve learned about our local market fits into the big picture of what’s happening in real estate nationally, I called Esswein to compare notes.
“It’s kind of a confluence of events,” Esswein explained. “On the sellers side, home prices in many cities are rising and homes are selling much more quickly. If you can sell your home in just a couple of months that feels pretty good. Inventory or supply makes it a great time to sell. For buyers, that means it may take some time to find what you want, but homes are still much more affordable, especially when you compare prices to mid 2006 when we were at the top of the market.”
So as the cover story reiterates, six years after the housing bust, home prices are rising and sales are surging. As of June 30, prices had increased 8.6 percent nationally from the year before. On average, home prices have risen 10.8 percent since the trough in August 2011, but they’re still well below their peak.
Here in northwest Indiana, we’ve reported numbers that somewhat reflect the very same trends. However, thankfully, we never experienced the depths of the “trough.” Our central location in the United States, in close proximity to Chicago yet safely across the Illinois state line, insulated us from the highest highs as well as the lowest lows of the housing crisis.
Just as Esswein and Gerstner prompted readers to take advantage of historically low interest rates and affordable prices over the last several years, I have written countless articles on that very same topic. But, now, as Bodnar pointed out, the plot thickens.
“Interest rates are still near historic lows,” Esswein said. “If you go to a mortgage payment calculator and look at different scenarios for the average payment on a loan with a 30-year fixed mortgage at rates from a year ago and today, it is more, but it’s not extreme. At Kiplinger’s we anticipate that by the end of the year, the average rate will be 4.25 percent. If you have any historical perspective – when I bought my first condo the rate was 7.5 percent – the cost of money is sill relatively low.”
Beyond that, Esswein also points out that most people buy or sell a home because they want or need to move on; they want or need a stake in their own home; they want or need a larger home to accommodate a growing family.
“There are a lot of personal reasons why people move,” she explained. “It’s not necessarily whether it’s a good time to buy or sell. I have a colleague who writes a monthly ethics column, and he makes the point that it’s important not to subject yourself to a boom mentality – to buy what you can afford and live with - to not stretch.”
With that in mind, the experts at Kiplinger’s offer some great advice for sellers, buyers and even those who want to stay put in light of current market conditions.
Top Tips for Sellers
· Price it right—it will move quicker, and you’ll avoid the frustration of reducing the price and keeping your home prepared to show. Plus, you’ll ensure that your home will appraise for the sale price, a necessity if your buyer needs a mortgage.
· Make it stand out—declutter and make small repairs; the more expensive your home, the more it makes sense to invest in staging. Buyers love a home that’s move-in ready and has goodies such as granite countertops. If you don’t want the hassle of meeting their expectations, price it accordingly.
· Weigh the offers—say that you receive multiple offers from qualified buyers who are prepared to increase their offers with escalation clauses. How do you choose a winner? Go for the cash offer first. If all of the bidders have a financing contingency, then start with the offers that aren’t contingent on an appraisal; your agent can ask those buyers to begin bidding against each other.
Top Tips for Buyers
· Pay cash—sellers love a cash offer that they know won’t bump up against an appraisal and can close quickly and easily. But if you have the means to pay cash, consider whether it’s the wisest use of your money—the idea of forgoing a monthly mortgage payment may be appealing if you’re approaching or in retirement.
· Get preapproved—if you need a mortgage, sellers will expect you to get preapproved for it by a lender who will determine that you can afford payments on a mortgage for a certain amount. Having a preapproval will also help you avoid wasting time looking at houses you can’t afford.
· Adapt—given limited selection, be prepared to adjust your must-have list. You may have to case a wider geographic net than you originally planned or compromise on size and other features.
· Make a strong offer—not all properties attract multiple offers, but if you have competition, make a full-price offer. If your means allow it and you really want the house, you may have to bid above list price and include an escalator clause that will lift your offer a certain amount above the highest bidder’s, up to a maximum amount.
Top Tip for Staying Put
· Tap your home’s equity—rising home prices mean you have more equity and more options. You can refinance to cut your monthly mortgage payment and total interest, do a cash-out refi to simultaneously refinance and extract equity for other purposes, or borrow against your home equity for, say, home improvements. Plus, if you’ve been paying for private mortgage insurance, you can cancel it when your loan-to-value ratio falls to 80 percent.
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