The improving economy, a tighter labor market and rising consumer confidence are fueling the continued housing market recovery. In January, existing home sales jumped to their highest level since early 2007 and nationally, prices rose to a 31-month nominal high, with prices up 5.9 percent from a year ago. The National home price index is up nearly 38 percent from the post-bubble low set in December 2011. (Don’t get too excited-when factoring in the rate of inflation, prices are still at April 2004 levels.)
Prices are expected to keep going up, because inventory remains low. Inventory has fallen year-over-year for 20 straight months. That’s not great news for buyers, whose interest in buying a home is the highest it has been since the Great Recession, according to the National Association of Realtors. (Younger households, renters and those living in costlier regions of the country – where prices continue to spike – are obviously the least optimistic.) And while mortgage rates have increased over the past five months, they still remain at historically low levels.
If you are ready to jump into the market, here are six steps for buyers
- Run the numbers: It’s important to understand how much home you can afford to buy and whether home ownership might preclude you from addressing other important financial issues in your life. For some, renting might be the better deal. And don’t forget to add in a line item for ongoing upkeep. A good rule of thumb is to include one percent of your purchase price as an annual budget amount for repair and maintenance.
- Start the mortgage process/correct credit report mistakes: If you have not done so in a while, go to AnnualCreditReport.com and request your free copy. It’s important to correct any errors on the report before you start the mortgage process. When shopping for loans, compare apples to apples and ask the broker to itemize the total costs that you should expect to pay.
- Hire a real estate attorney: This is a major transaction, so don’t cheap out when it comes to legal fees. Even if your mortgage company provides a lawyer, hire your own to draft all of the necessary documents and to ensure that your interests are being represented at every step of the process.
- Conduct a home inspection: Think you’ve found your dream house? Maybe, but unless you have an engineer walk through the premises with you, you might be buying a new roof in a couple of years. Don’t get freaked out if a problem arises during the inspection–remember that it can often be solved with a simple adjustment in price.
- Beware of the “great” deal: In case you run across what you think is a gem, remember that many of these properties could need major repairs. Be sure to bring in a qualified contractor to help assess the costs of upgrading the home.
- Avoid “The Best/Worst Places to Retire” list:These compilations provide great headlines and may even help guide you, but they can’t possibly take into account the details of your personal situation.
If you are a seller, follow these six steps:
- Hire the right realtor: Find someone who has experience with your neighborhood and price range. During the interview process (you should talk to three agents), determine who has leapt into the digital age with a variety of ways to reach potential buyers.
- Identify key home improvements: If you haven’t done so in a while, you will probably have to paint the house, replace the broken windows, clean or replace old carpets, cut the lawn, plant the flowers and tend to the garden. Even the small stuff counts, so make sure all light bulbs in the house are working, remove all clutter from closets and surface areas, fix leaky faucets, re-caulk the showers and tubs. If all of this prep sounds like too much work, you can hire someone to “stage” your home, which takes the process to a more professional level.
- Consider a pre-inspection: Some sellers, especially those with older homes may want to identify a potential problem earlier in the process.
- Set the right price: The first three weeks of a home’s entrance on the market are the most critical for creating interest and attracting buyers. Remember, that buyers often dismiss a listing that is “old and stale”, which means that the longer the home stays on the market, chances are the selling price will be lower, both in absolute dollars and as a percentage of list price.
- Reduce price, if necessary: Generally speaking, if there hasn’t been a bite for three to four weeks, it’s probably time for a price cut.
- Lean on your realtor: If you are lucky enough to get a bid, let your realtor skillfully and calmly handle the negotiations. Your reactive or emotional responses can impede the process or worse, kill a deal.