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Today’s Market Shows Signs of Change, According to Industry Expert

by Ultimate New Home Sales and Marketing, Inc.

"Why buy now?" Today, this very valid question is being asked by just about every buyer that comes through a builder's sales office. The answer is simple. People buy for the same reasons that they always have: Better lifestyle, better schools, nicer neighborhood, more convenient shopping, need for a bigger or smaller home, job transfer, tired of paying rent, tax benefits, etc.

In addition to all of the usual reasons, there is an incredible benefit to buying right now during the current buyers' market, according to Steve Kaller, CEO of Ultimate New Home Sales and Marketing. "Buyers no longer have to sit helplessly on the sidelines while prices spiral out of their reach. Now, with home prices having dropped to levels that haven't been seen since 2003 and all kinds of incredible incentives being offered, the buyer is in control," said Kaller.

California's leading new home sales specialists at Ultimate New Homes Sales & Marketing are continually addressing the question of, "Why buy now?" According to Kaller, it's all about supply and demand. With a large supply of homes on hand and low demand due to lending complications, prices have gone down drastically.

In 2006, the sub-prime lending market began to implode. As a result, buyers could no longer afford to purchase homes due to the lack of available loans. Demand for new homes plummeted while supply was still high, and the buyers' market began.

As the market changed, builders came under intense pressure to sell the homes they had on hand. Unlike most homeowners who can wait to sell their existing home until the market improves, builders need their unsold homes off of their books today. This is why the prices of new homes are now at a lower level than the prices for used re-sale homes. In fact, today buyers are often purchasing new homes for less then it cost to build them, according to Kaller.

But neither buyers' nor sellers' markets go on forever.

"California's most recent buyers' market occurred in the early 1990s," said Kaller. "People who bought homes in that market were told by friends, family and work associates that they were making a huge mistake. They were told that the ‘sky was falling' and that home prices would continue to drop.

"However, those that bought in the early 1990s are known today as savvy and sophisticated buyers. Today, those buyers have huge amounts of equity in their homes. That same thing will be said about the buyers taking advantage of today's market… that they were savvy investors that took advantage of a very temporary market condition."

Smart buyers know that at some point home prices always stop dropping. The savvy buyer further knows that long-term population growth will always cause increased demand for new homes.

California's population is forecasted to expand from the 34 million recorded in 2000 to 43 million by 2020 (per U.S. Census reports). These new California residents will need to buy homes to live in, and as supply decreases, demand will increase.

In today's market, builders are already working to decrease supply, and construction lenders have stopped making loans to builders. Therefore, supply is now shrinking, not growing as homebuilders begin to report increasing sales rates every week. The reason is that buyers are able to buy their dream homes well below market value and are now able to get the financing they need.

Many potential buyers are not aware that over the past several months, many new loan programs have been created, and some great old ones have returned, with minimal or no down payments and low interest rates.

"In the not too distant future, we will be reading headlines that proclaim that home sales are up, supply is down and guess what… builders and banks are no longer selling homes at a loss as they are back in the business of building homes to make a profit," said Kaller.

"Buyers that procrastinate may find themselves shut out of the market. Interest rates for the past five years have held at 25-year lows. However, we cannot expect the rates to stay low forever as there is ever increasing pressure for the rates to rise significantly."

As the market begins to change yet again, the next generation of new homes will be built to the affordability of each local market and not for investors or speculators. As a result, the next generation of new homes is unlikely to include as many extra features as the homes of today. The buyers of these next generation homes will have to pay for extras such as beautiful granite countertops, upgraded cabinets, moldings and stainless steel kitchens.

California housing cycles always come and go. But even with the ups and downs, over the last 34 years, median home values have appreciated 7% per year. On a compound interest basis, this equates to homes almost doubling in value every 10 years.

Smart home buying is about taking advantage of the convergence of supply, demand, financing and interest rates. Right now, the supply of new homes is quickly diminishing, demand is still sluggish, new home prices are at their lowest point in years and financing is again becoming available. At the same time, interest rates continue at 25 year lows.

A buyers' market has persisted for over two years. But, the signs are clear that the pendulum is swinging. Now is the time for savvy buyers to take advantage of this "perfect storm," and purchase a beautiful new home that provides them with the lifestyle that they desire and that their families deserve.