Taking advantage of today’s market
By Kelly Sweeney
It’s common knowledge among retailers that nothing brings out buyers like a good sale. Consumers love bargains! That’s exactly what the metro Detroit real estate market currently represents. It could be billed as the biggest sale on homes in history.
Consider this. Prices on houses in most areas in Southeast Michigan have come off the highs of just a few years ago by 30-50 percent. While that represents a challenge for those who purchased or refinanced their homes at the peak of the market, it has also created the buying opportunity of a lifetime for at least two specific groups of buyers.
First time buyers are finding that they can get more for their money than ever before. Not only are home prices more affordable, historically low interest rates on mortgages are also contributing to the best affordability index in many years. And while the commercial credit markets remain very tight, mortgage money is readily available for those with reasonable credit scores.
Growing families, sometimes labeled “move up” buyers, are also enjoying unprecedented opportunities to acquire the home of their dreams. The additional capital required to purchase a larger home has been significantly reduced by the compressed market. Let’s look at a specific example.
Assume a young family purchased a three-bedroom home several years ago at the peak of the market. They paid $250,000, but their home has lost 30 percent of its value and is now worth only $175,000. Because of the growing needs of their family they would now like to move up to a larger four-bedroom home that would have cost $400,000 at the time they bought their current home. Such a purchase would have required an additional $150,000 then, which they couldn’t afford.
The declining market has worked in this family’s favor, however. The value of the four-bedroom home has also fallen by the same percentage as their current home and can now be purchased for $280,000. That reduces the additional amount needed to acquire the larger home from $150,000 to $105,000, a savings of $45,000, or nearly $300 per month! The savings are even greater in higher price ranges.
Apparently, home buyers are figuring this out. Homes.com, a real estate search site, recently published a top-10 list of market areas with the largest growth in search activity at the site from January 2008 to January 2009. Search traffic grew the most in the Detroit market, which was up 52 percent.
Smart consumers who know how to manage their finances well tend to be contrarians. They buy when everyone else is selling. They move up when others are moving down. This is a market when being a contrarian can be a good idea.
Kelly Sweeney is the president and CEO of Weir Manuel Realtors in Birmingham.
