Now Is The Time To Begin The Purchase Process

Thursday, 3 Nov 2011, 6:23:00 AM

Michael Edlen

This has become an interesting real estate market in Santa Monica and nearby areas. Many prospective buyers are hesitant to commit to the purchase of a home even when it meets most of their criteria. Their reasons for hesitating include being confused by many of the current news articles and reports that have created anxiety and feelings of uncertainty about the future. Many say they are waiting for the market to reach its bottom before buying a home and have even decided not to buy a home that was a very close match to their needs and wants.

Similarly, many potential home sellers are also waiting for a better time to place their home on the market. They are often under the impression the housing market is going to recover within a year or two, and it will benefit them to wait. Their feelings seem to be based more on hope than on any facts or historic price trends. The last time our local market experienced a significant price decline was in the early 1990s. It was approximately five years before the bottom was reached, and about three years until noticeable price increases began.

After an unsustainable nine-year period of increasing prices, the market has now experienced approximately four years of significant price adjustments. Although the average rate of price decreases has been steadily slowing for the past several months, before the market can begin any noticeable price recovery it must first have a period of stability. If history is an indicator, it could reasonably be anticipated that prices may be trending upward after 2015-2016. Of course, it may be several years before prices exceed current levels. Thus, the sellers who choose to wait until prices are higher than they are now may need to wait far longer than they had anticipated. This is especially significant if there is a strong emotional, practical or financial reason to sell.

For those buyers who remain on the fence, they may miss out on the opportunity to enjoy a perfectly suitable home. In the meantime, those who are more decisive and take advantage of the opportunities will be enjoying many more years in that ideal home which they were able to purchase at near-historic low interest rates. Since many homes available for sale in this market are due to financial distress and pressure, today’s buyer often has several alternatives to select from at more affordable prices. Although prices may come down a little bit over the next year, now may be the best time to seriously begin the purchase process. With local prices already down approximately 30 percent, this is very close to what the ultimate bottom may be.

Most people view the cost of homeownership based only on the price they pay for the property. A more accurate way to view the cost is to consider cost of interest paid over the term of the loan. For example, when interest rates increase by two percent, the cost of waiting could be very high over time. Even if prices were to decrease another five percent, the borrower could pay vastly more in additional interest than the apparent savings by buying at the absolute bottom of the market. Moreover, of course it has often been observed that “no one rings the bell” at that point of major trend changing. It is nearly impossible to perfectly time such moments of opportunity.

Correspondingly, there are some factors that sellers may do well to consider regarding their timing. By postponing the sale of their home, they are also delaying the enjoyment of whatever their reasons are for doing the sale. For example, the alleviations of financial pressure, relocating to be closer to other family members, moving to a more suitable form of living, etc. For those who hesitate to sell because they want a higher price, if they are going to be purchasing a home concurrently, then the relative differences may be fairly insignificant. Again, now may be a better time for them to sell.

Michael Edlen has been in the top 0.5 percent of all agents nationwide for more than 15 years and provides a broad range of real estate counseling and marketing services. He and his team of specialists can be reached at 310.230.7373 or at Michael@MichaelEdlen.com. Other valuable information is at MichaelEdlen.com.

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