As a first-time home buyer, housing prices can seem a bit overwhelming. If the market in your area is in a down cycle, perhaps you are wondering if it is a wise investment to buy. In fact, a down market can be a great opportunity to save money as a first-time home buyer.
A down market
When housing prices stop appreciating at their previous rate or maybe even depreciate, this is known as a down market. Part of the point of buying a house is that it is considered a good investment. A first-time home buyer may question the wisdom of that thinking if home prices are no longer rising. How can you make money on your investment if prices are stagnant? It can actually help your investment’s potential growth since you have a chance to buy a house at a discount.
Ways to save
A down market offers several opportunities for the first-time home buyer to save money on the purchase of a first home. First, sellers often reduce their asking price in a down market. While the house may have sold for 10 or 20 percent more a year earlier, now the market demands that it be priced lower. There are ways for the first-time home buyer to take advantage of this.
- Investigate how much a seller paid for a house. Use that as a starting point for where to price your offer.
- If building, find a new construction community that offers many free upgrades to attract buyers.
- Look for homes that have been sitting on the market and offer what you feel is a reasonable price.
- Also, look for homes in which the asking price keeps dropping. These sellers are ready to make a deal.
Is it a smart time to buy?
Buying in a down market can be a shrewd move for a first-time home buyer. It is a chance to buy more house for less money. However, if you do not intend to stay in the house for more than a couple of years, then it is not a wise decision. If there is a strong possibility that you could move within two years of the home purchase, you should probably avoid buying in a down market. You may not live there long enough to give the market a chance to rebound. It is much more likely that you can lose money on the transaction.
If, however, you plan to stay in the house for at least four to five years, then it is much more likely that the market will turn and you can make money. You have to live in the home long enough to give the market a chance to improve. Also, look at the history of the market. If it was consistent about steadily appreciating and perhaps specific factors caused this downturn, then it can be a good purchase for a first-time home buyer.