Taking Advantage of a Slow Housing Market
If someone asked you if you would rather purchase a house for $300,000 or $280,000 you would probably say $280,000. Why spend more than you have to? Yet, in reality, because we tend to look at what others are doing when making our decisions, many people purchase when prices are higher, because everyone else is buying and avoid buying when prices are lower (during slow housing markets), because no one else is buying. Concerns about further depreciation have also kept many people from purchasing homes during slow markets. However, by recognizing the opportunities slow housing markets present prospective buyers can break away from the pack and take advantage of good deals.
Buying during a slow housing market is advantageous for many reasons:
Sellers often set their asking prices lower than the prices of similar houses that sold months before. Sellers are also often more willing to offer other allowances, such as paying for closing costs, leaving appliances, and doing repairs.
Sellers are more likely to accept offers for less than the asking prices, unlike during a hot housing market, where you may have to offer more than the asking price to get a house.
Because it is less likely for homes in a slow market to get multiple offers you have more time to search before deciding whether or not to make an offer. You do not have to make a hasty offer on a house you are not sure about because you are concerned someone else will make an offer on it first.
There tends to be an increased availability of foreclosed properties, which are usually priced low.
How to know if housing market is slow
You may be asking yourself, “How do I know if the market is slow or not?” There are several signs to look for. Drive around the neighborhood and see if there are any “Reduced Price” signs on the homes for sale. See how long the “For Sale” signs stay up at homes. Is it two weeks or two months? Look in your local newspaper. If the housing market is slow often the newspaper will write about it. Also, you can look in the real estate classified section and see how many people are advertising a price reduction. If you are working with a real estate agent he or she should be able to do much of the work for you. Real estate agents have access to a listing service that shows how long homes have been on the market and if there have been any price adjustments.
One of the reasons that many people avoid purchasing a home in a slow housing market is because they are worried the value of the home will depreciate further. No one wants to purchase a $250,000 home, only to have it be worth $240,000 a month later. Unfortunately, while you can usually tell if a market is slow or not, you cannot tell when the bottom will hit. People who wait for the rock bottom prices often actually wait too long and purchase when prices are on the rise. If you are planning to stay in the house for several years further depreciation does not need to be a major concern. You are getting a better deal than many people who have bought before you, and long-term the value of your house will in all likelihood rise.
When to avoid buying
While a slow housing market presents a good opportunity for many buyers, buying is not necessarily the best choice for everyone. If you are planning to flip a house (buying a fixer-upper and renovating and selling it quickly) or only have it for a year or two before selling it may be best to wait, since it is possible that home prices will depreciate further short-term. Regardless of the condition of the housing market, it is never a good idea to buy a home if you cannot afford the mortgage payments. Even when prices are dropping, in high-cost areas purchasing a home is still not affordable for many people. Creating a budget can help you to determine how much house you can afford and if purchasing a home now is right for you.