Oct 03, 2007

Reasons to Buy a House in a Down Market

Everyone gets a little wary when the real estate market starts to soften, as it recently has in many places. Homes are selling more slowly, and prices are plateauing or going down. Sellers are afraid of putting their house on the market when prices are at their lowest point, and in some cases, of losing money on the sale. But many buyers are also falling prey to fear, namely that the lowest prices have yet to arrive, and that they're therefore buying into a bad investment.

For buyers, at least, there are least three reasons to swallow your hesitation and get into the real estate market. These include:

1) A house isn't just any old investment, it's where you'll live! If you were thinking of investing in pork bellies, and the prices were about to go down, that would be a different analysis. But if you're looking to buy a home for the reasons that many people are -- like settling into a stable environment that you can customize to your own wishes and perhaps raise a family in -- why wait to get started? Life is short and the real estate market's short-term prospects are uncertain. In fact, in many parts of the U.S., the much-publicized real estate market downturn hasn't actually happened, and prices are continuing to rise. In any case, over the long term your house is likely to increase in value, as U.S. house values have ever since this country was founded.

2) You've got leverage when buying. (That's why they call this a "buyer's market".) Look090907_condo-sale.JPG at any local headlines, and you're likely to see stories of concessions made by desperate sellers or builders. Some sellers are offering to pay more than the traditional share of closing costs, plus leaving behind certain pieces of furniture or a flat screen TV. Builders of new homes are adding extra amenities, and throwing in cruises and other benefits that have little to do with the house. (Of course, some sellers are slower to accept reality and may hold out for an unrealistically high price, as discussed by John Schoen on MSNBC.)

3) If you're selling your own home, sure, it may be tough to sell and the profits may not be stunning, but you'll be saving money on the house you buy, too. If you wait until the market is hot, that next house may be out of your reach, particularly if you're looking for a larger house rather than downsizing.

Of course, I have to issue a couple of cautions. One concerns new, unestablished communities. If you're buying into a new development that's far away from an urban center or other conveniences, you may not want to take a chance on other people also seeing its long-term virtues. Living in a community of empty houses is no fun. And if you can predict with a fair amount of certainty that prices are about to go down where you're planning to buy, for example, because a new smelting plant is about to be built there, then of course you should think twice about buying.

To learn more about the red flags any homebuyer should be looking out for, read Nolo's Essential Guide to Buying Your First Home (Nolo), by the authors of this blog -- be it your first buying experience or your tenth, this book has something to offer every potential homeowner.

Ilona Bray