Time to buy is before seller’s market builds

I’ve been getting asked this question now more than ever: “Is now a good time to buy a house?”

Many buyers have been waiting for the real estate market to hit bottom before getting off the fence and making that next real estate purchase. When it has been officially deemed a buyer’s market by all the national real estate associations — then yes, it’s a good time to buy. You just better hope you haven’t waited until it is too late.

Fortunately for buyers, seller’s markets must build, while buyer’s markets happen overnight. For the Washington area, the market turned in June 2005. At that time, top producers from all over started reporting it was as if everyone just stopped shopping for houses.

Statistically, the buildup of inventory that pushed the buyer’s market along began in Washington in January 2005.

For one of the submarkets, here’s how it looked: In Northern Virginia, comprising Fairfax and Arlington counties and the city of Alexandria, only 1,193 homes were active on the market in January 2005.

The interesting part is that 1,740 houses went to settlement that month. The absorption rate was less than one month’s supply of houses. These statistics come from Metropolitan Regional Information Systems Inc., the area’s multiple listing system (www.mris.com).

Keep in mind that the 1,193 listings were supposed to serve an area of more than 1 million people. Fast forward to June 2006, 18 months later. Northern Virginia had 12,096 houses on the market, creating a sellers’ market with a six-month supply of houses.

The significance of June 2006, however, was that this was the last month in more than 11/2 years that the inventory would stop its steady climb upward. After that month, the number of monthly active listings began to retreat. And that’s what I’ve been waiting for.

Could it be that the buyer’s market has begun to subside and that we’re going to return to the “glory days” of yesteryear? I hope not. Having less than one month’s supply of houses to serve a community of more than 1 million people is not healthy.

The good thing is that it’s now going to take a while to eat up that inventory. The figures do not include new homes.

Buyers of resales have a while now to choose from the homes they want, and interest rates are still fairly low.

Ask most Realtors about buyers’ and sellers’ movements in the marketplace, and you’ll probably hear words to this effect: Buyers are waiting for the bottom to hit and sellers are holding onto prices or removing their homes from the market.

With this latest analysis, it may be that we’ve actually hit the bottom. Back to square one: Is now a good time to buy?

Here’s why I think buyers should get off the fence, get financed and purchase a home.

• Money is cheap. We have historically low interest rates. Currently, most borrowers can nab a mortgage in the 6-ish percentage range.

Depending on the points you want to pay, and for those with good credit, loan rates are from 6.75 and down.

• Inventory is high. This results in choice and negotiation power.

For sellers who are set to take opportunity by the horns and get moving, the buyer can get thousands off the list price, so the seller can turn around and do the same thing.

Most sellers in this market can afford to take a $25,000 to $50,000 hit on the sales price because they’ll be able to negotiate the same type deal on the backside of the transaction. In some communities, there’s more than a year’s supply of houses on the market.

• Income is growing. The stock market is on the march, resulting in a growth of personal income and wealth.

This also contributes to the buying power of buyers. Is now a good time to purchase a home?

They don’t call it a buyer’s market for nothing.

M. Anthony Carr has written about real estate since 1989. He is the author of “Real Estate Investing Made Simple.” Post questions and comments at his Web log (https://commonsenserealestate.blogspot.com).