With signs of an early spring thaw in the housing market, buyers are looking to spot the best deals.
There are still weeks left to go before the official start of the most active homebuying season of the year, but there are signs that lower mortgage rates are already luring buyers back to the market. Pending home sales have been increasing throughout January, and for the last seven days of the month, new pending sales were up by 16% from the previous week, according to real estate data company Altos Research.
The uptick in buyer activity is a result of mortgage rates dropping by nearly 1 percentage point since early November. Some buyers who found themselves priced out of the market late last year now have an incentive to buy, says Rutger Van Faassen, head of marketing strategy at data intelligence firm Curinos.
“[When] rates come back just a little bit, that puts people back in the game,” Van Faassen says.
Inventory, on the other hand, remains tight, with fewer homeowners listing so far this year. With more attractive mortgage rates and signs of a small rebound in buyer activity, there may soon be more competition for available homes.
That’s why spotting the right opportunity is crucial for buyers looking to snag a good deal. Here are five tips to help you on your hunt.
1. Know the market
There’s going to be a lot of variability between different housing markets, even those that are relatively close to each other. One city neighborhood may be very much in demand, with low inventory and higher prices, while another may be less active and offer more affordable options. Getting to know what type of market you’ll be looking at can be helpful in determining how competitive it is and what price range you’ll find.
You can get an idea of whether a home is priced right by looking at listing sites and comparing prices for similar homes in that neighborhood. A higher-priced home may be a sign that it is move-in ready or has stand-out features that may be appealing, but it also could be a sign of wishful thinking on the part of a seller.
Look at data on how many homes have recently sold in the area, what they sold for and how many sold at a reduced price. This will give you an idea of buyer interest in that market and how willing sellers are to negotiate on a home sale or offer concessions.
Finally, hire a real estate agent that is knowledgeable about the specific markets you’re interested in to round out your research.
2. Don’t fall for the pretty stuff
Everybody knows about curb appeal, right? It’s a good way to make your house stand out from others. But as a buyer, you want to look deeper into homes that seem nice on the surface and pay more attention to the basic bones of the house.
“People buy pretty,” says James Jensen, a RE/MAX Now agent in Valley City, North Dakota, who notes that buyers often overlook major issues in favor of homes that look well-kept. “You can usually get a better deal on something that’s structurally sound but not as pretty,”
Look at things like the roofline and foundation to make sure the home is in good shape. Homes that have upgraded furnaces and HVAC systems are also going to be a good buy, since you won’t have to spend a small fortune to replace older equipment.
A thorough home inspection will help point out issues that could break your budget before you actually buy — or at least serve as a starting point for negotiating with the seller. After all, a nice paint color and manicured lawn won't do much good if you have to spend a fortune fixing the roof.
3. Consider potential profits
The main purpose of a home is to provide shelter, but for some buyers it can also be a stepping stone to building greater wealth. If a home checks all your boxes and is located in a desirable neighborhood, plus it’s in excellent condition or requires only minor repairs, it’s probably a good deal.
Homes tend to appreciate between 3% and 5% in value every year. A home that is well maintained, close to good schools, has a good layout or is close to amenities like parks, restaurants and stores will still be an in-demand location a few years into the future. That’s vital if you know you’ll want to sell.
If you’re looking at a home as a source of income, then you also want to look at the rental market in the neighborhood. Figure out how long it will take you to not only recover the costs of the purchase but also cover the monthly costs of owning and maintaining the home — plus a little on the side as profit.
4. Look at homes that have been listed for a while
When a buyer sees a home that has been listed for a while, they tend to think there is something wrong with the house. But being in poor condition isn’t the only reason homes stay on the market, Jensen says.
Sometimes a home goes under contract right away and is listed as pending, which means most buyers will stop looking at it. But at some point before closing, the deal falls through. The house becomes available again, but by now it has already been on the market for a few months and is considered a “stale” listing.
You may be overlooking a hidden gem by not at least checking older listings out. Plus, Jensen adds, a lot of sellers are likely to be more willing to negotiate after having a deal fall through.
5. Buy during the offseason
The busiest time of year for home sales is during the spring and summer seasons. Most buyers use the time near the end of the school year to move to a new location and be settled in by the time school starts up again.
This means there is more buyer competition and home prices tend to rise as a result. During the late fall and winter, however, there tends to be less buyer activity and home prices between September and February tend to fall by about 3% compared to March through August, according to Nadia Evangelou, senior economist and director of economic research at the National Association of Realtors.
There are some downsides to shopping during the offseason, however. Inventory is usually more limited and proper home inspections may not be feasible due to weather conditions. But it can still pay off to try to buy in the offseason: with fewer buyers, those sellers who do list may be more motivated to sell.