Strategies For Home Buyers And Sellers

Now may be a good time to look for a different house, snatch up some acreage to enlarge the family farm, or troll for coal in eastern Kentucky.

It’s a buyer’s market, which means first-time buyers who have been sidelined by huge price increases are finally getting a break.

For many sellers, though, it’s not good, as median home prices are down 4-6 percent in the areas hardest hit by the adjustable-rate frenzy, such as the upper Midwest and parts of Florida. Meanwhile, the number of houses on the market has exploded and the length of time they stay for sale has increased, according to the National Association of Realtors.

Housing market inventory
“Inventory is still high, and further reduction in prices may be required in some areas to induce buyers into the market,” says Lawrence Yun, the association’s chief economist. The inventory of unsold homes was more than 4 million, an excess that would require nearly a year to exhaust at the current sales rate.

Housing prices are likely to slide further this year, as credit remains tight and interest rates on many mortgages are set to rise, or reset, and could trigger more defaults, according to Alex Frangos, a reporter for The Wall Street Journal. Relief from the housing woes is unlikely anytime soon, predicts Mark Zandi, chief economist at Moody’s Economy (www.economy.com).

Zandi says, “Inventory needs to be worked off before the market finds some stability.” His models predict a bottom to the housing market this year, but only if the economy stays relatively strong. “If it slides into a broad-based recession, it won’t be until the end of the decade that the market finds a bottom,” he says.

So how should you respond?

Seller or buyer?
If a buyer, be a shrewd bargainer. Put pressure on the seller by scouting similar homes in the neighborhood at lower prices. How long have they been on the market? The longer a house has been on the market, the more likely the sellers will be to negotiate. Before making an offer, research recent sales of comparable properties in the area, and gauge the seller’s motivation. Your dream house may finally be affordable.

If selling, set a realistic asking price by using estimates from several real-estate agents instead of relying on your own opinion. As an extra incentive, offer to include appliances, such as the refrigerator or wide-screen TV. Or consider paying some of the buyer’s closing costs.

Remove clutter, especially in the kitchen. Rent a storage unit for extra items. Buy a new doormat, paint the front door, and make sure all locks work smoothly. First impressions are key. (Read Kentucky Living’s May 2007 feature, To sell your house: STAGE IT)

If your house lingers unsold, consider renting it out short-term, especially if there is a convention or major festival in town. Use a lease and get a security deposit. And make certain your homeowner’s policy covers liability claims from renters. But keep good records: if you rent out your main home at least 15 days in a tax year, the income is taxable.

Invest in farmland
Farmland is a relatively bright spot, with growing demand for corn and soybeans to fuel both U.S. and foreign requests for alternative energy as oil prices surge to around $90 a barrel.

Additionally, Kentucky’s vast coal reserves are gaining attention as major energy consumers, such as China and India, grapple with oil in the $90 range. These Asian energy consumers are attracted to coal because it is less vulnerable than oil to the geopolitical upheaval that can cause price volatility.

China and India, which account for 45 percent of world coal use, will account for more than four-fifths of the increase in global consumption over the next two decades, according to the International Energy Agency. Asian energy consumers are examining the feasibility of building coal-to-liquid plants to make gasoline and diesel. The technology also offers cleaner fuels than those from oil. On the downside, each ton of oil produced from liquefying coal requires five to 18 tons of water.