Video: Is it safe to buy a house?

updated 8/25/2006 4:43:57 PM ET 2006-08-25T20:43:57

Housing sales across the country are slowing down, for both new and previously-owned residences.  As the pile up of homes that haven’t sold hits a record high, what should prospective sellers do right now?  Is it a good time to buy?

We asked Lauren Young, personal business editor for Business Week.

‘The Most’: Why are sales slumping?
Young: This housing recession is primarily an inventory correction, as builders adjust to the aftermath of the demand frenzy in previous years. In some metropolitan areas, including Orlando and Phoenix, the supply has quadrupled. The over supply is squeezing prices of new homes, and it’s also putting a drag on existing home prices.

However, the sharp drop in housing starts of more than 20% so far from the January peak implies builders are moving quickly to realign their stocks of unsold properties with the lower level of demand. The faster the adjustment takes place, the quicker the downward pressure on home prices will ease.

The good news is that the economy outside of housing remains solid: Unemployment is low, household incomes are growing, and 30-year fixed mortgage rates, at a bit over 6.5% in mid-August, are hardly onerous.

‘The Most’: Should home owners pull their homes off the market now, or just bite the bullet and sell at the best price they can get?
Young: It depends on where you are. The states with the biggest drops in home sales are the ones who’ve seen the steepest price appreciation over the past few years. (Over the five years ending Dec. 31, average U.S. home prices jumped by 58%, according to a federal housing index.) You might have to wait it out in those, but there are so many other factors. This is where working with an experienced realtor who knows the market is going to add some value.

If you really need to move property fast, consider an auction firm. Typically, you’ll set a stipulated minimum that isn’t revealed to bidders, so you won’t lose your shirt.

‘The Most’: Homes are sitting on the market awhile, but average prices are still higher than this time last year.  Will prices drop?  Has the bubble finally burst?
Young: It’s true that nationwide, the median sale price of previously occupied homes in June was 0.9% higher than it was a year earlier. But that’s also the smallest year-to-year increase since May 1995, according to the National Association of Realtors.

Prices are down in places where they were up a lot, and they are strong in places with good demand. For example, prices are still strong in Seattle, where there’s not much inventory for the affluent technology-driven population, so prices are strong. But in Washington, our reporters say it seems like there are for sale signs on every corner-and nothing is moving. Prices in the Northern Virginia counties of Fairfax and Arlington and in nearby towns, near Washington, averaged $537,731 in July, down 3.9% from a year earlier, according to the Northern Virginia Association of Realtors

What is interesting is the new ways people are trying to move properties. In San Rafael, Calif., for example, owners of a home listed at $1.54 million are trying to lure buyers by offering a weeklong vacation time-share, every year for life, worth about $10,000, or an equal amount toward lease of a car.

‘The Most’: Is it time to buy now, or should buyers wait for an even better deal?
Young: Again, this depends on where you are looking. There are some great bargains out there, particularly in the areas with way too much supply. The best thing to do is set a price target. What are you willing to pay, and how low do you think it can all go?

‘The Most’: How about real estate investors?  Should they stay in the game?
Young: I think real estate is a great investment. But you have to be careful about putting too many eggs in one basket. Aside from the home you live in, if you have more than a third of your net worth tied up in real estate, consider putting the money else where.

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