Nextwave Finance

Real Estate- Down Market Means Buyers Market

September 13th, 2008 | by admin |

Real estate can be a great investment strategy, but it’s not without risks. Knowing when to buy and sell, and making wise purchasing choices, will greatly increase your ability to make money and protect your investments in the real estate market.

Currently America is experiencing one of the worst down markets in recent history, and the world is feeling the effects of the down market as well. For most Americans, this trend has had a negative effect on their portfolio, as their stocks and retirement funds have seen a steep decline in value. For anyone considering a real estate purchase for personal or investment purposes, however, there is a silver lining to these dark economic times. A down market translates into a buyers market in real estate.

So what exactly is a ‘buyer’s market?’ This term describes the economic conditions in which the power shifts from the seller to the buyer. In a buyer’s market, a real estate investor has considerably more leverage to demand and receive concessions such as money towards closing costs, down payment assistance, and allowances towards home improvements. A buyer’s market also means that there is an increase in affordable properties on the market, because real estate has been devalued and prices have been driven downwards.

The relationship between a down market and a buyer’s market involves several factors. Firstly, our economy is currently suffering from a ‘credit crunch.’ Lenders are unwilling or unable to extend credit as freely as in recent years, due to the high volume of home owners defaulting on their mortgages. This means that the pool of potential buyers has shrunk, and only people with good credit and liquid assets for a down payment are getting approved for mortgages. With less potential buyers on the market, the laws of supply and demand kick in: buyers have more power, because there’s a glut of inventory on the market and less competition to buy.

Secondly, all the symptoms of a troubled economy, such as job cuts and inflation, lead to a high number of people having to default on their homes. Many of these people were approved for sub-prime loans which they couldn’t really afford, or had Adjustable Rate Mortgages (ARMs) whose payments ballooned after their fixed interest expired. As a result, the real estate market swells with foreclosures, and sellers desperate to avoid one. Foreclosures can be a great deal for the discerning buyer, as banks will often sell foreclosed properties for less than their appraised value.

Thirdly, new home construction in America has been prolific in recent years, but buying has slowed due to the down market. This has resulted in an overage of vacant new construction. Home builders with a glut of available stock and a limited pool of buyers are motivated to offer better prices, more purchasing assistance, and higher upgrades on their stock homes.

For the real estate investor or first time home buyer who has good credit, decent income, and the money for a down payment, a down market marks an excellent financial opportunity. The first step in taking advantage of the current financial climate is to get pre-approved for a mortgage. From there, you can begin the process of searching out great deals in the new and existing home markets.