Peter Pays Paul

This current market is a great market to buy investment property or a first-time home.

Why? In many markets, including the East Bay Area of California, the market has returned to a more normal status. The insanity of the seller’s market during 2004 and 2005 has shifted to a buyer’s market. In some areas of the country there has been a price correction for homes.

The buyer’s market is a simple product of supply and demand. Currently, there are more homes on the market than buyers. This creates a surplus of homes. In Concord, California there was roughly a 12 month supply of single-family homes available, according to my calculations.

Two things can resolve the current surplus of homes. 1) More home buyers enter the real estate market. This is the more unlikely solution. Mortgage lenders have tightened their qualifications for loans. Eligible home buyers must have better credit scores and a stable financial situation to qualify for loans. Also, interest rates have increased in the past few weeks, decreasing the amount home buyers qualify to purchase. The combination of these two factors make this solution less likely than the other.

2) Home owners decrease their home prices. Sellers will need to make their home more attractive to the available home buyers in the market. One of the ways will be a reduction in listing price. This can be evidenced through buyer incentives (credits toward closing costs) or by lowering the asking price. Home sellers are forced to compete on price to entice buyers into the home.

Home sellers cannot immediately increase the number of home buyers as a result of their actions. However, a home owner can lower the price of their home to increase the home’s attractiveness to the available buyers. If you can buy more house for less money, why wouldn’t you?

This makes it a great market to buy a home for investment or personal use. I say that with a caveat: The holding period should be greater than two (2) years. I make this caveat because I think that we are near the bottom of the current real estate market correction. I am not sure that we have reached the absolute bottom yet. A two year holding period allows for the real estate market to reach bottom and begin to rise again.

My advice to buyers and investors: Call your agent today and get in the market! This in my opinion is a great time to buy for the long haul.

My advice to sellers: Do not expect to set the terms of the deal. You are no longer in the driver’s seat of the real estate market and need to make concessions to home buyers.

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