“Are you giving away free basements?”

A woman asked me this question today (I work for a local homebuilder in sales).  She and her husband have been to multiple builders in the area and have become accustomed to give aways.  Another salesperson from our company actually had a customer try to convince her that prices will go DOWN next year.  There is a fine line between optimism and ignorance/stupidity.  But who can blame people when they read things like this recent Time magazine article.  The market is confused.  This confusion makes for a great time to buy.

In purchasing residential real estate, there are three primary indicators of the market’s condition: interest rates, consumer confidence index, and employment rate. 

Interest Rates: The fed began lowering rates post 9/11 and didn’t stop until they hit a 27 year low.   Then they reversed their tactic in a strong housing market.  Today we sit on the 17th rate hike in the past 2 years.  Our 6.75% interest rate is still a bargain if you look through a long-range lens; but for those who observed and took advantage of rates a couple of years ago (I have a friend who locked in under 5%), today’s rates seem high.  Interest rate is the primary confuser of buyers in my opinion.  Many customers think that if they’ll just wait a year or two to buy, then the rates will return to 5%.  “Hi, this is reality…dream on.”  Rates won’t go back that low for a while, but they will fluctuate a little.  That’s why I received a call from my banker today.  I’m refinancing for no cost and gaining 1/8% on my mortgage.

 Consumer confidence: This does exactly what it its name implies – it measures our confidence in our ability to purchase goods and services.  They assign a number to aforementioned confidence.  I read once who “they” are, but can’t remember.  We’ll just pretend that a group of nerdy economic staticians meet regularly to come up with a number.  One would think that the guy who bought his house at a low interest rate in 2002 on an adjustable mortgage and is now watching his monthly payments creep up along with gas costs would have lower confidence in his ability to purchase more stuff.  But the confidence rating is around 106, up from an average rating of 96.  People still feel ok with purchasing that new grill for the deck or a plasma to hang above the fireplace.

Employment: This varies by area, but US unemployment just climbed from 4.6% in June to 4.8% in July.  Last month’s rate jump follows on the heals of a stellar 1st quarter.  The concept is simple: the guy who has a job feels comfortable spending more money to purchase a new home.  In Indianapolis (and particulary Noblesville), giants like Lilly, Roche Diagnostic, and Sallie Mae line my drive to work.  These guys, combined with a great biomedical network, make Indianapolis a great place to live and work.

So why buy now?  I’m a firm believer that when change happens, money changes hands.  Transition creates opportunity.  Today you can still own at a reasonable rate and probably bargain down the price.  Sure, you’ll run into a lot of owners who think that their property is worth a lot (I had a customer suggest that he just needed to fire his current real estate agent and raise the price of his current home by $20,000 to get it sold).  But you’ll also find a few people out there whose home has been on the market for 180 days and is up for price negotion or concessions.  You can live in the house yourself; or better yet, rent it out to the sucker who decided to wait for rates to come down again and needs a place to live while he waits them out.  The three indicators are relatively positive, but the market is waiting to see what happens.  Act now and you just might find youself in a positive new worth position in a few years.