The opportunity may be gone to collect a tax credit for buying a home, but that doesn’t mean there aren’t other opportunities for buyers. Just consider this: there were some reports of sellers “hardballing” buyers in the last few weeks of tax credit eligibility. Sellers knew that buyers were working against a deadline and they took advantage of it. They knew getting under contract meant up to $8,000 in tax credit for the buyer and they decided to “force” the seller to share the wealth by increasing the offered price. “If I accept your offer you stand to receive an $8,000 benefit. My counter offer involves you sharing that… I want $4,000 more than you offered.” We might say that a buyer’s opportunity became a seller’s opportunity as the deadline approached.
This reminds me of the oft-stated truth, “There’s nothing like a fast approaching deadline to keep you focused.” In a perhaps not intended way, the tax credit deadline created some “undue influence” on buyers who waited until the last minute to find their home and get the deal done. We can argue whether or not the sellers in these instances were being fair, but the buyers ultimately put themselves in this position.
A lot of buyers are repeating the mistake and again putting themselves in a less than ideal position. Without getting all “economic” we can say with some confidence that interest rates are already off their lows. I’m not confident about how quickly they will climb, but I’m sure they will. The only question that’s worth talking about is how long it takes for sellers to realize climbing interest rates are creating another deadline for buyers.
It’s basic math. As interest rates climb, payments and costs go up. Each “click” up potentially reduces the amount of house a buyer can afford. (The money that would have gone into purchasing the house goes into paying to borrow the money.) So, let’s say for example, as a buyer you postpone your buying decision hoping prices will come down. If you’re looking at homes requiring a $100,000 mortgage and interest rates climb just one half percent that delay cost you $5500 in increased interest cost over the life of the mortgage. Your monthly payment will also increase 3%.
If interest rates begin to climb quickly, sellers may gain the edge in negotiating. The house the buyer could afford today will become unaffordable at some point in the near future.
So, while I don’t subscribe to the “it’s a great time to buy!” theory as a general guideline, I do think it’s a great time to sit down and do some thinking and analysis and make some decisions. If you are in the market to buy, how long are you going to wait before you “get serious” and make a decision? Does waiting cost you money or make you money?
Let’s not forget the principle of “target fixation.” The term stems from a phenomena discovered in World War II where pilots became so fixated on targets they would tend to collide with them during strafing runs. The brain gets so focused on the target that awareness of obstacles and hazards decreases. (If I represent you in a transaction, one of my tasks is to help keep you focused without allowing you to become fixated.)
Your stimulus package is no longer about a tax credit. In reality, that was only one piece of the buying decision. I’ve used interest rates as an example, but that’s just another component. Yes, prices of homes (in general) are down. That’s just another component. Your personal stimulus package needs to include all the positives and negatives at your disposal–you might be surprised at how many there are!