During times of economic downturns, home prices fall. Many people are unable to hold onto their large mortgages, due to job loss, pay cuts, and the rising cost of home expenses. Many areas of housing booms are now seeing rapidly declining home values. Areas like California, and Las Vegas, with previously-inflated home prices are dropping rapidly. This causes homeowners to try and sell their homes before prices fall even further, which creates a market that is ideal for buyers.
Buying a home in a declining market is a smart choice; however, it is important to look for areas that have already reached their bottom levels. There are a few ways you can search to find out if home prices have stabilized in a certain area. Ask your real estate agent to show you prices of recently-sold homes over the past one or two years to determine if house prices are continuing to fall. You can also look at how long the average sale time is in the area. If all homes sell at around the same time, then prices have likely stabilized.
Smart Home Buying Options during Real Estate Decline
There are several smart ways to purchase homes during real estate decline. Often, you can purchase a home for less than the current value, which is generally much lower than the cost of the original mortgage. However, these kinds of sales often require huge sums of cash up front, which can be difficult for buyers to obtain. However, if you can get the money, you can secure a nice house for much less than the previous home value.
A REO sale is the sale of previously-foreclosed homes. These properties are bank-owned. Typically, a foreclosed home is sold for the lowest price possible, because banks would rather have the money from a home rather than own the property itself. Purchasing a foreclosed home can be a risk, because often the homes were not cared for by the previous owners. However, the low purchase price often makes up for any damage. Typically, foreclosure purchases are snapped up quickly once they are up for sale.
A short sale is similar to a foreclosed sale, but instead of the bank owning the property, the seller still owns it. The sellers are facing foreclosure, but the bank allows them to sell the home on their own to avoid foreclosure. Typically, you can purchase these homes for the remainder of the previous owner’s mortgage. However, the short sale takes longer than any other kind of sale because so many parties are involved.
Auctions are a way that banks and government owned properties can be sold quickly. Homes at auction often have tax liens and other liens placed on the home that prevents sale through normal means. The purchase price of an auctioned home is extremely low, but usually the purchase requires huge amounts of cash and you may have to purchase the house sight unseen.
Buying a home in a declining market may seem like a bad idea at first, but if you have enough cash for a large down payment and search through auctions, short sales, and REO sales, you may be able to find a hidden gem property that is worth much more than you paid.
This is a guest post by Lisa Peteres, a fresh guest blogger and a full time real estate specialist. Currently she is investigating San Diego short sale and other home buying options and their effects on the market.