The housing market is a lot healthier than it was five years ago - which isn't entirely good news for someone buying a home. While a total market collapse might frighten many buyers away, a moderate amount of distress can create pockets of opportunity for bargain hunters.
The question is, where do you find those pockets of opportunity now that the market has been improving for a few years? For buyers in a few states, there still might be just enough distress to create some attractive deals.
Market conditions - national vs. local
Looked at on a national level, the housing market appears to be on the upswing. The S&P/Case-Shiller US National Home Price Index has bounced back by 24 percent since bottoming out in early 2012. The S&P/Experian First Mortgage Default Index, which measures the rate at which mortgages are going into default, is now under 1 percent, after having been close to 4 percent five years ago.
So from a national perspective, the housing market appears to be improving. Sharpen the focus down to the state level though, and there are still signs of trouble.
According to mortgage data from Black Knight Financial Services, while mortgage payment conditions have improved in recent years, there are still five states where 10 percent or more of mortgage borrowers are behind on their payments. This compares with the national average of 6.9 percent. These states are Mississippi, New Jersey, Louisiana, New York, and Rhode Island.
In some ways, looking at rates of people who are behind on their payments but not in default or foreclosure might represent a sweet spot for bargain hunters. It captures people who may become motivated sellers, but not those who have reached the point of neglecting their properties or abandoning neighborhoods in large numbers. Also, while not all home sellers in a given area will be in the same degree of distress, all it takes is a concentration of motivated sellers in an area to soften up the market generally in favor of buyers.
How to look for - and get - a good price deal
When you identify a house that you like, you probably won't get to find out the details of the owner's financial condition. Nonetheless, there are some good signs that financial weakness in the area generally has affected the housing market, and here are some ways to sniff that out:
- Check out how many properties are for sale nearby. Think of those properties as competition - from the seller's point of view. The more competition, the better the buying opportunity.
- Look at how long the property has been on the market. Unless there seems something wrong with the price or the property itself, if a property has been sitting on the market for a long time it may well be a sign that the supply of houses for sale in the area outweighs demand. This tips the bargaining balance in favor of buyers.
- See if there have been any price changes. If the list price has come down, this can be an indication that the seller is getting anxious. It might also mean that competition in the neighborhood is driving prices lower. In any case, it tells you that the seller has already shown a willingness to compromise on prices, so you might be able to get a further compromise.
- Try a low-ball offer. If you see signs that the supply-and-demand balance might be in your favor, try making an offer that is 10 percent below what you would be willing to pay - which itself might be below the list price. The market probably won't be so weak that the seller will jump at this offer, but if buying interest has been tepid the seller may well come back with a counter-offer rather than a simple rejection. You can bargain your way to a price from there, but you will have reset the boundaries of negotiation to a lower level.
- Look carefully for signs of neglect. Angling for a good price is all well and good, but if you get the sense that the owners are being forced to sell for financial reasons, make sure to get an especially thorough inspection of the property. You want to make sure that no important maintenance has been neglected because money was short.
If you have any qualms about driving a hard bargain when buying a home, remember this: in many cases people with mortgage problems got in over their heads by overpaying for their homes. Being price-conscious now that it's your turn to buy will help you avoid the same fate a few years down the road.