With real-estate values still sliding and mortgage rates approaching record lows, a favorable climate for homebuying is accompanying this year's fall foliage. And as the days grow colder, housing experts say, homebuyers will have another reason to jump into the market in the coming months.
"Let's face it," says Guy Cecala, the publisher of Inside Mortgage Finance, an industry newsletter. "Anybody who is trying to sell a house going into the winter months has to be flexible, and you should be able to get good deals."
That's because the residential real-estate market is highly seasonal, with many homebuyers planning their transactions around the academic calendar. Buyers with children typically start their searches in the early spring in hopes of having a contract signed by summer so they can move into a new house by late August. Once the school year begins, however, the housing market heads into hibernation, with sales activity declining until January or February, when it bottoms out.
With fewer buyers competing, people looking to purchase property in the off-peak season could find themselves in a better position to land the deal they've been looking for. "I tell people to buy off-season," says Ron Phipps, a broker with Phipps Realty in Warwick, R.I. "You may be able to do better than you otherwise might."
Here are 10 tips for anyone looking to buy real estate in the off-peak season:
1. Make sure you are secure in your job
Although the house-hunting climate may be favorable, buyers need to be confident in their income streams before jumping into the market. And with the national unemployment rate above 10%, a growing number of Americans might find themselves out of work in the coming months."If you are unsure about your (employment) outlook, there is nothing wrong with renting," says Mike Larson of Weiss Research. "Renting is a bargain these days, too."
Real-estate research firm Reis says the national apartment vacancy rate hit its highest level since 1986 in the third quarter. Landlords dropped asking prices by nearly 2% to attract tenants, Reis says.
2. Spit-shine your credit
With defaults on home loans rising, banks have jacked up lending standards for borrowers of all sorts. For example, today's borrowers will need a FICO score of roughly 720 or higher to get the most-attractive mortgage rates. (Read "Raise your credit score to 740" and "The new math of FICO scores" for more.)At the same time, most borrowers will have to produce several months of bank statements and tax returns from the previous two years to obtain a loan, Cecala says.
Such requirements, while not earth-shattering, stand in stark contrast to the breezy credit standards that many people could get in the first half of the decade. "It is a brave new world out there when it comes to getting a mortgage," Cecala says. To ensure that they can get the home loan they need, he recommends house hunters get preapproved by a lender before starting their search. (Read "7 tips for a preapproved mortgage.")
"The idea is to try to work your way through the financing issues before you actually are ready to put an offer down," he says. It's also helpful for borrowers to review their FICO scores and credit reports. If any errors appear on the credit reports, take care of them.
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3. Gear up to get down
The financial turbulence of the past two years has driven the once-popular "no money down" home loan into extinction. As a result, would-be homebuyers will need cash on hand for a down payment. Although requirements will vary, depending on the borrower and the market, buyers will need a down payment of at least 3.5%."If you haven't got your assets in order or your liquid reserves are pretty low, you are going to want to go make changes to your holdings so that you have got the cash available to make the transaction happen," says Keith Gumbinger of HSH.com, which tracks mortgages and consumer loans.
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Borrowers who can't come up with a down payment should consider setting aside a portion of each paycheck until they have saved enough cash. (Read "How to come up with a down payment.")
4. Get wired
Although national housing statistics often make the headlines, real-estate markets fluctuate tremendously from one place to the next. As a result, it's essential for house hunters to become intimately familiar with the community they are looking to buy into. What are the price trends? How long have listings remained on the market?
Although a real-estate agent with experience in that particular market can be a big help with these questions, today's buyers can also gather all sorts of useful information from Web sites such as Zillow, Trulia and Realtor.com.
Joshua Dorkin, the founder and CEO of BiggerPockets, a real-estate networking and information site, encourages homebuyers to find a good real-estate blog that covers the area. "The advent of the localized real-estate blogger is a really useful tool for buyers," Dorkin says. "You will get a nice localized perspective as to what's going on in the neighborhood."
Continued: How fast are taxes rising?
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