The only way to kick start the real estate industry in the US is for people to start buying homes. Problem is too many people are sitting on the sidelines for a variety of reason and this is contributing to the current slide in real estate values. In order for this downward trend to stop and home prices to stabilize and start to rise again, somebody needs to start buying homes.
With regards to home buyers, there are many reasons why someone decides to buy a home and in this post I’ll explain the major types of home buyers and why or why not they should be the ones to start buying homes now and get this real estate market rolling again. Here are some of the different types of home buyers;
1. Move Up Buyer -
This is the person who already owns a home, possibly their first home, and wants to move up to a bigger, better home for one of two reasons; either they need a bigger home because their family is growing i.e. more kids, or they are making more money and want to move into a better neighborhood and a bigger house.
2. Down Size Buyer -
These people are otherwise known as empty nesters and they are the folks who are looking to sell their home and move into a smaller home, condo or townhouse because all their kids have grown up and moved out and they no longer need all the space and 4+ bedrooms.
3. Rehab Buyer -
These are the home buyers who look for real estate that is in tough shape and selling at a low price. They buy these beat up properties, fix them up, and sell them for a profit. This group generally consists of small builders/contractors, carpenters or handy people who know how to assess what needs to be done to a home and they have the skills and connections to make it happen.
4. Investors -
Investors are the people who buy up real estate intending to rent it out. Over time, they build up wealth through both cash flow and real estate appreciation.
5. First Time Home Buyer -
This is the group that is moving out of apartments and other rental property and buying their first home. People usually make this move when their family is out growing their apartment and/or when they have moved up in their career and can now afford a down payment.
People also decide to buy their first home because they want to lay down some roots and experience the sense of community that comes with getting to know your neighbors, your schools and other aspect of community that aren’t so present when you are renting.
Of all the different segments of home buyers in real estate only one of them is perfectly suited to start buying homes today, the first time home buyer, and here’s why; The first time home buyer is one of the only segments mentioned above that doesn’t have to sell a home to get started. Even rehab and investor buyers need to sell a home as they may need to cash out some equity/appreciation so they can roll that money into their next property.
According to a recent article 90% of home owners think now is not a good time to sell as their homes values have steadily gone down since the peak of the real estate market in 2006. So it’s safe to say the “move up” and “down size” buyers aren’t moving anytime soon
Secondly, the median price of homes in the US has been dropping over the past 5 years and there are now some super deals out there in most markets. For example, in at least 14 major U.S. metro areas, prices are now at 2003 levels.
The third reason first time home buyers should jump in to the real estate market soon is that mortgage interest rates are STILL at record lows. If someone would have told me I could buy a home in 2003 at a 5% 30 year fixed mortgage rate, I would have jumped on it. Who wouldn’t as a 5% mortgage rates is like free money if you look at the history of mortgage rates.
Here’s the deal , the real estate market is at the mercy of home buyers and the one group that is truly positioned to take advantage of today’s depressed home prices and low interest rates are first time home buyers. If you fall into this category and your still scratching your head about it, try banging your head against the wall as it may jolt you into the temporary realty that is the perfect market to buy a home and it won’t last.
If you’re at least ready to start looking, visit www.mlsmaps.com to access millions of homes for sale and mls listings in every price range.
Soooo true. But what I can’t figure out is why the Realtor community is so hesitant to accept FHA financing (SoCal) and 203k financing. A lot of first time homebuyers don’t have the funds to paint, put in their color of carpet, buy appliances etc… The 203k allows them to do that but instead I’ve found the Realtors would rather either wait for a cash offer on a non-foreclosure home that needs some TLC rather than accpet 203k terms. This mentality pushes out the first timer, and encourages low balling investors, which in turn can hurt values. Nice article here.
203k loan
Kevin, I think most Realtors are under the impression that 203s are really, really hard to do. That’s helped along by the fact that a lot of lenders think so, too. I’m glad that not everybody does.
Thanks Kevin!
I was in mortgage for a number of years and remember trying to bang out a few 203k deals. I love the idea and hope more home buyers take advantage of this program in the near future.
Author of this article forgot to mention another important type of buyer. A first time home buyer that is ready to turn his/her first home into a rental and move up. This is a smart thing to do when you are considering a long term wealth plan. Especially since the object in Real Estate can be to just collect property and not sell, allowing renters to pay down their mortgage and have a sorce of positive cash flow and tax incentives. The market is RIPE for this right now. follow me on twitter to read my deal of the week and other Real Estate investment oppertunities. http://www.twitter.com/keenrealtor
Some good insights there, but I could honestly write for hours as to why people aren’t buying. The least of which is that the lending side has gone crazy. It’s like they went to Ying from Yang, meaning if you want a loan today, you better not need the money versus if you could breathe into the mirror before, they’d give you the moon!
I agree that it’s a great time to buy for TONS of reasons, and first timers are the logical choice to lead the market, but they are either 1) being held back by unrealistic lender’s expectations (min 700 fico, etc) or 2) holding back themselves because so many companies have scared the living bejeezers out of people telling them to do the job of 2 people and be lucky they have a job.
The economy will need to get MUCH MORE stable before the first timers (and many othes) will get off their butts and start buying. It’s sad, but true. At least it’s true in most places. I can tell you in our area, the market didn’t take anywhere near the hit it did in so many other places. We are grateful for that! It is really kind of isolated as there is a steady flow of people coming and going with WVU and the industries around here keeping the economy rolling steadily. Probably one of only a few places like that in the whole country.
Nice blog. I will be back in the future for sure.
Thanks!
I agree with qualifying for a mortgage being a big road block for first time home buyers today, that and the fact that they are more likely to need a real down payment unlike the days of late where you could buy a house with no money down and get a check at closing.
No wonder we are in the mess we’re in!
Ken, the real estate market (and the rest of the economy) is in the mess it’s in today precisely because of the days whose passing your mourn–the “days of late where you could buy a house with no money down and get a check at closing,” often offered by lenders to buyers who should never have been encouraged to apply for a mortgage.
The interests of any person considering a home purchase extend far beyond price and interest rate, and the current “temporary real[i]ty that [this] is the perfect market to buy a home and it won’t last” may not line up with those broader interests. Your suggestion that people bang their heads against the wall until they they grasp this reality to your satisfaction is self-serving, and can at best be considered an inadvertently irresponsible piece of rhetoric attributable to your understandable frustration as a real estate professional.
What it cannot be considered is good blanket advice for first time home buyers. In the end, any home buyer’s first job is to look out for the long-term welfare of his or her family, not to show mercy to the real estate market.
Hi Mike,
I couldn’t agree with you more. The days of easy money, 100% financing with questionable credit scores and no-doc loans had a lot to do with the current mess we are in.
My comment about people banging their head against the wall was not meant to be self serving. I am simply suggesting that for people who are well qualified and financially prepared to buy a home, there isn’t any real reason to stay on the side lines. Home prices have plummeted since there peak in 2006, and interest rates may never be more favorable. If a person is planning on buying a home in a good neighborhood and living there for 5 years or more, thinking that the market is going to go down even more and you can successfully time the bottom is a waste of time.
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