The Buyer Is Still King, But Not for Long

When the market was on its way up, many buyers jumped in with both feet despite warnings that the real estate bubble was about to burst--fortunately the bubble wasn't as great in the New York metropolitan area as in other parts of the country. And now that the market is down, many buyers are still standing on the sidelines as if waiting for an official signal that the worst is over.

My advice for those who are hoping to wring the last bit of value out of a deflated market is to act now. The door is closing, and time is running out. For buyers who have heard the "now is the time to buy" message so many times that it is falling on deaf ears, maybe it's time to bring out a two-by-four and hit them over the head with it. We are at the bottom of that bowl-shaped curve.

Granted, we don't know if we are exactly at the bottom. Perhaps we have a few degrees to go, or perhaps we are already on the upswing. But if you don't buy now, you won't be riding the upward trend.

A number of factors have contributed to making now the time to buy. Most important is interest rates. At the end of November, the average commitment for a 30-year, fixed-rate mortgage fell to its all-time low of 4.78%, according to real estate analyst Jeffrey Otteau of the East Brunswick-based Otteau Valuation Group. That rate represented a decline of 0.08% from the June peak for the year of 5.11%.

Although small, this decline translates into a considerable increase in buying power-- specifically a monthly savings of $100 on a $200,000 loan. That $100 extra a month enables a buyer to spend approximately $20,000 more on a house for the same monthly payment than in June. And with mortgage rates now having nowhere to go but back up, buyers who wait can only expect their buying power to decline.

Also contributing to current market conditions is the reduction in inventory. According to a recent report issued by the Otteau Valuation Group, the inventory of unsold homes in New Jersey in October was 8.7 months, meaning that it would take this long for all of the houses on the market to sell. That figure was down from 14.9 months a year ago and 16.9 months at the beginning of the year.

Since the point at which home prices tend to stabilize occurs when the inventory reaches a supply of eight months, the recent report means that New Jersey is nearly at the end of three years of declining prices.

Indeed, eight of New Jersey's 21 counties have an eight-month supply of inventory or less, meaning that they are at or slightly below the point where decreased inventory causes prices to rise, according to Otteau. These include Bergen, Essex, Mercer, Middlesex, Morris, Passaic, Somerset and Union Counties. And in some New Jersey submarkets, where there is less than four months of supply, home prices are already going up.

The same is occurring on a national level. Home prices rebounded at an annualized pace of nearly seven percent in the second quarter of 2009, according to the Standard & Poor's Case-Shiller home price index, and the number of homes for sale is expected to continue decreasing throughout the spring and summer of 2010, according to Lawrence Yun, chief economist for the National Association of Realtors. In other words, residential real estate isn't getting any cheaper.

Although the message isn't getting through to everyone, some buyers are finally beginning to realize this. The entry of these buyers to the market created a late autumn lift that is predicted to continue through the winter, when sales typically decline. Based on current trends, winter home sales activity is expected to rise to its highest seasonal level since 2004, a time when homes prices were still on the rise, according to Otteau.

We have witnessed this trend at American Properties Realty, where we sold six homes in the first two weeks of 2010 at the Jefferson, our condominium community in the Mercer County community of Ewing, and seven homes during the last quarter of 2009 at our Millpond at Eatontown condominium in Monmouth County. The late fall and winter are typically periods of slow sales due to the onset of cold weather and the time constraints on buyers posed by the demands of the holiday season.

Another factor contributing to the increased sales at Millpond at Eatontown -- and to the overall upswing--is the extension of the federal tax credit program, which offers a credit of $8,000 to qualifying first-time homebuyers and $6,500 to repeat buyers. The pool of eligible buyers has also been expanded through the liberalization of the annual income limitations, which are now $125,000 for single filers and $225,000 for joint filers.

All of these factors have conspired to make now the ideal time to buy. In terms of buying power, buyers have never had it so good. Low interest rates, reduced prices and federal tax credits for first-time and repeat homeowners have made realizing the American dream of home ownership easier than ever. The only thing holding the market back is that there is still a large pool of buyers out there who have yet to get the message.

At this moment in time buyers are still kings of the real estate market, but the time is coming in the not-too-distant future when rising interest rates, increased prices and the elimination of federal tax credits can be expected to topple them from their thrones.

Paul Csik is senior vice president of sales and marketing at American Properties Realty in Iselin.