Are you sitting on the fence? 3 reasons why it may cost you.

It can be argued that prices will continue to fall for the unforeseen future. Heck there is an awful lot of  notice of defaults being filed and if those are not modified they will inevitably hit the market. An influx in bank owned properties in any given location will generally lead to a drop in the overall price in the area. This happens because Banks price the properties ultra-competitively to get as many offers as they can. Once you are emotionally tied to the property they will ask for the “highest and best offer” that you can bring and ultimately sell the property for more than list. However, this price is still generally lower than the traditional seller.

So what is it that we are waiting for? The general consensus of the buyers that we are working with is:

• It is a buyer’s market - therefore I can make a deal
• Rates are low and they will go lower -  I have time to find the right property.
• Homes are sitting on the market forever- In Sacramento the majority are sold withing 90 days.

Again, this lends to the question what are we waiting for? Well based on the above consensus I find that buyers are looking for the perfect home. Many of the consumers are looking for their starter home with the mentality that it should look like the dream home.  This causes buyers to remain on the fence. Here are 3 reasons that sitting on the fence may cost you:

1. Rates Rise – There is a great chance of rates increasing in the coming months. Just in the last 10 days we have seen the average par rate for FHA increase by a .5% or more in some cases. On a 250K dollar loan an increase in the rate of .5% is about $80 per month in the payment. If the rates can rise a .5% in 10 days just think what can happen when the tides turn for the long term. An increase of 1% would be $160 per month. In most cases this will decrease the affordability or the possible purchase price. This is a 28K dollar increase over the life of the loan for a .5% and 57K with a 1% increase. The bottom line is that a 1% increase can cost nearly a years salary or more in your bottom line.
2. Home prices rise – Depending on the market you are in and the price range we are starting to see prices stabilizing. Once they begin to stabilize the market will then get tougher to get a closing cost credit as this is a sign of a switch from buyers market to seller. We have already began to see many cases that the bank or the seller is less willing to contribute to closing. If you are trying to buy a home for 250K and the seller is not providing any seller concessions you have to be prepared to bring 17K to the table. 3.5% for the down payment, 2.5%-3% for closing costs and about 1% – 1.5% for the prepaid items in advance. After your tax credit this is 9K out of your pocket. Once the tax credit goes away yo0u would be liable for 17K
3. Incentives go Away -The Fed will not give away free money forever.

AKA – Inflation will come some day. Inflation will bring higher rates. Get in while the gettin is good!