5 Ground Rules for Home Buying Success in 2009

There’s a new game. It’s called predict the bottom of the Daytona Beach real estate market. Many are playing, but only a few will get it right on the button. The question is how close do you need to be.

First, you must understand one thing about our market that is very important. Prices in the Daytona Beach Homes and condos market are being determined by distressed properties. Foreclosures and pre-foreclosures are driving prices. When you hear or read about prices dropping 30%, it is this type of home that’s available at those prices. Two things are certain about the supply of distressed properties, there are plenty of them right now and the supply will not last forever.

Second, interest rates are at historical lows. As of this morning, the average 30 year fixed rate mortage was at 5.08%. This is wonderful, but probably very short-lived. We believe interest rates will rise, but right now they are a tremendous bargain.

So, we have two factors that together present what people have been calling a once in a lifetime opportunity. Incredibly low prices coupled with incredibly low interest rates. So, what’s the problem? There are two:

1. Confidence in the economy
2. Fear of prices dropping further

There are two certainties, the economy will improve and prices will rise again. The question is when?

So we’re back to the game of predict the bottom. The great thing is that you don’t need to be right on in this game. Close is good enough.

Let’s acknowledge that if you buy a home right now that there’s a risk that it will drop in price, but, let’s also acknowledge that there’s a risk that interest rates will rise. We published the following number a while ago:

$200,000 mortgage at 5.14% = $1,090.82 monthly payments
$180,000 mortgage at 6.5% =$1,137.72 monthly payments

Do you see the significance of low interest rates. If you finance your purchase, rising interest rates may be more important to you than the risk of falling prices. Rates were at 6.5% a very short time ago, so it’s possible they will climb back up to that level or higher.

With the background part complete, let’s look at our five ground rules for buying a home in 2009:

1 - Don’t buy for short term profit

A minimum of 5 to 7 years will be needed to realize a reasonable profit. If you consider that window, you are probably safe from price drops over that period of time.

2 - Buy a Good Property in a Good Neighborhood / Community

Buy in an attractive desirable neighborhood or condominium. Prices in desirable neighborhoods will most likely rise before other areas and at a better rate. Don’t buy because it’s cheap, buy because it’s a really good home or condo and it’s cheap.

3 - Get your financing in order before you buy

It’s still very important to be pre-qualified before looking at properties. For short sales and foreclosures, banks and lenders will expect you to be qualified or to pay cash. Do it before you start looking at properties so you are ready when it’s time to make an offer.

4 - Make the Offer Contingent on an Inspection

Short sales and foreclosures will be sold “As-Is,” but, still make your offer contingent on an inspection. This is insurance against major hidden problems with homes that may have been damaged or poorly maintained. After the inspection, you can decide if you want to go through with the purchase.

5 - Patience

Lenders have been very slow to respond to offers. This process will not be like any you’ve experienced in the past. It will take time and if you’re not prepared, you may become very frustrated and upset. Know upfront, that can be a slow process, but very rewarding when successful.

I’m working with buyers right now who are buying to and rent out the homes, and, buyers who are moving from out of state because homes and condos prices in the Daytona Beach area are so low. People who couldn’t afford to retire here a few short years ago, can now afford it. I’m amazed at how much home you can buy for the dollar right now.

You need to decide if now’s the time. There’s risk, but there’s also opportunity. It’s up to you. I’ll be glad to answer any questions you have. Give me a call at 386-566-7503.

Technorati Tags Daytona Beach Condos, Daytona Beach Homes, Daytona Beach Real Estate, Foreclosures, Short Sale

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5. Buying A Home in a Down Market