Smart Moves

Right after the pandemic hit, a married couple in their 30s began searching for their dream property: a semi-suburban house in turnkey condition on a three-plus acre plot where they could start a nursery business and raise vegetables. Their timing couldn’t have been worse.

“Trying to fulfill our housing vision during the pandemic was pure torture, with all those high-speed bidding wars. We lost all those battles, despite our strenuous efforts,” says the husband.

But the couple, an architect married to a nurse, have persisted in their quest. A month ago, they discovered the perfect property: a contemporary house in a bucolic five-acre setting. Though the place is priced slightly above their range, they have reason for hope, as no other bidders have emerged in more than two months. What’s more, the owners are about to relist at a lower price.

“As our agent tells us, this property has become a ‘stale listing’ because it was overpriced when it first came on the market and now carries a stigma. So, our strategy is to wait for the right moment and then to jump in with a fair bid,” the architect says.

Tom Early, a past president of the National Association of Exclusive Buyers’ Agents (naeba.org) doesn’t know the buyers in this true tale. Still, he applauds them for their strategy of targeting a so-called “stale listing.”

“Dramatically higher mortgage rates are bad for buyers. But because of that, the out-of-control seller’s market is cooling down a bit. Now, more sellers are surfacing. In many -- but not all -- areas that’s slightly lessening competition among purchasers and adding to the supply of available homes -- one of several silver linings for buyers," Early says.

Danielle Hale, chief economist for the home listing service Realtor.com, estimates that active inventory is now 17% higher than last year.

“Rising inventory will eventually cool home price growth,” Hale says.

Here are a few pointers for would-be buyers who wish to make the most of the changing market:

-- Exercise caution in timing your bid for a “stale listing.”

As Early says, the best moment to make an offer on a stale property is shortly after price cuts occur. Another element of good timing is to put forth your offer when the sellers are under pressure to move.

“Very often, your buyer’s agent can find out from the listing agent whether the sellers must move soon due to divorce, a financial setback or a job transfer," according to Early.

Early says that during vacation periods many “test-the-market” sellers -- including retirees free from pressure to move -- take down their For Sale signs. Most who are left are highly motivated to cut a deal.

If your agent can’t determine the seller's level of motivation from conversations with their listing agent, you can often obtain clues by talking with neighbors.

-- Don’t rule out buying a brand-new place from a builder.

Early, who’s sold homes since 1982, says he’s helped many purchasers score a good deal on a brand-new property that the builders constructed without specific buyers in mind. These are known as “spec” properties.

Though many such homes have already been snatched up by eager buyers, Early says there are still more available for those who hunt them down.

“Look for builders who still have several ‘spec’ houses in their developments. They need to sell these homes to pay off the bank for their construction loans. Their urgency could result in a decent deal for you,” Early says.

During the worst of the pandemic, many builders had a hard time keeping up with intense demand. They’ve also been troubled with supply chain problems, especially involving lumber and other building materials. But these issues are gradually resolving themselves.

-- Recognize the limits on your leverage in the current market.

Although there are several silver linings for buyers in the current market, Early seeks to disabuse buyers of the belief that the strong seller’s market is over entirely, particularly in popular metro areas, where multiple-bidding situations still abound.

“This is not a period for bottom fishing or bargain shopping. This would not be the right time to come in with an insultingly low bid for a solid house that is already appropriately priced,” he says.

Buyers can sometimes look back with regret when they fail to act aggressively enough to obtain a place they adore. There’s no shame in offering list price or slightly more in a hot area, assuming you’ve done your homework and are convinced you’re not paying more than a couple of thousand dollars over true market value.

“You can’t let emotion cloud your judgment. But if you’ve found a house you dearly love, years from now you won’t regret that you ran that extra mile to make it your own,” Early says.

-- Don’t procrastinate once you’re sure you want to buy.

Despite their recent ascent, mortgage rates remain near historically low levels. But will rates continue to rise in coming years? That seems likely, given that the Federal Reserve has announced its intention to raise interest rates in order to combat inflation. Meanwhile, there’s no guarantee that home prices will dip in the near future, considering that many millennials in their home-buying years have yet to buy their first home.

“In most popular areas, renting isn’t that much cheaper an option than buying. In addition, rental rates could rise significantly in the future. That’s why I caution a lot of frustrated buyers not to back off from their home chase and delay further,” Early says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

For wannabe homebuyers, the rapid rise in mortgage rates, compounded by escalating home prices, is adding to their gloom. Also unhappy are homeowners who’d still like to refinance, perhaps to tap equity for a home renovation.

“In the short term, no one is celebrating higher interest rates, unless they believe these will tame inflation, strengthen the stock market or keep the country from sliding into a recession,” says Eric Tyson, the author of “Personal Finance For Dummies.”

Tyson says that among the hardest hit by escalating interest rates are those with significant credit challenges. These include would-be borrowers who are self-employed or who have major blemishes on their credit reports.

Given the current inflationary picture, lenders are now tightening their credit standards prior to loan approval, says Joel Kan, who oversees economic forecasting for the Mortgage Bankers Association (mba.org).

One cohort of consumers facing credit issues are known as “credit invisibles.” These are typically young people who’ve yet to establish credit histories because they haven’t taken out loans and therefore don’t have credit scores. However, older people can also fall in this category if they haven’t used credit for years.

The Consumer Financial Protection Bureau (consumerfinance.gov) estimates there are more than 26 million Americans who are currently “credit invisibles.”

Jacob Channel, senior economist for LendingTree, a marketplace for borrowers, says one good strategy for those seeking to build (or rebuild) a credit history is for the borrower to become an “authorized user” on the credit card account of a family member or friend with a well-established credit history.

“This is a little like going from zero to 60 in six seconds,” says Channel, who cautions that this approach is only an effective means of improving one’s credit standing if the primary cardholder has a positive track record and maintains good credit habits.

Another credit-building strategy involves taking out a “secured credit card,” which is backed by money deposited with the lender in a separate account.

“A secured credit card is like a training-wheels card. The key for this type of account is to be sure you make your payments on time and that your lender reports your activity to the major credit bureaus,” Channel says.

Here are a few other pointers for those with credit challenges who are trying to build (or rebuild) their credit to buy or refinance a home:

-- Look for a lender willing to get you started with tutorials.

Gerri Detweiler, an expert on consumer lending and author of “The Ultimate Credit Handbook,” encourages would-be homeowners to seek out a mortgage lender who will instruct them on the intricacies of home loans.

“A good lender won’t think it unreasonable to spend two or more hours teaching you the basics and helping you deal with potential flaws on your credit reports,” Detweiler says.

But how do you find a sympathetic lender willing to usher you through your first or second attempt at home finance?

Keith Gumbinger, a vice president for HSH Associates (hsh.com), which tracks the mortgage market for consumers throughout the country, says real estate agents are usually a good bet for sound advice on finding a qualified lender. But he says you should look well beyond the suggestions of agents.

“For referrals, I recommend you use what I call the 'Satisfied Customer Index,’ also known as friends and family,” he says.

-- Do your homework in advance of meeting with the lender.

To maximize the use of your time, there’s no substitute for gathering key documents ahead of your meeting. Ideally, these should include recent pay stubs, your latest W-2, a couple of years’ worth of federal tax returns and your current account statements.

By providing these documents at the front end of the process, your lender should be able to quickly calculate your top borrowing limit for a mortgage and assess your eligibility for various lending programs.

-- Check out your credit status with online tools.

Under federal law, you're entitled to one free credit report each year from the three largest credit bureaus: Equifax, Experian and TransUnion. You can easily request these online (annualcreditreport.com).

Besides your credit reports, you'll want to access your "credit scores." Such scores, which draw on data from the credit bureaus, seek to provide lenders with a quantitative measure of a person's credit risk. Most lenders still use FICO scores, pioneered by the Fair Isaac Corp.

One way to obtain your FICO scores is for a fee through the Fair Isaac website, myfico.com. You can also receive credit scores through the three large credit bureaus. FICO scores range from 300 to 850, and the higher the score, the more likely you are to get the best available rate on your mortgage.

Once you’ve chosen a property you want to buy, it’s time to get serious about making your mortgage application. And with your credit scores in hand, you can readily begin the process of comparison shopping on rates.

As Gumbinger says, you may wish to start the rate-shopping process with the lender who tutored you in the basics of home finance.

But he strongly suggests you extend your rate hunt well beyond the first lender you consulted. And he recommends you include community banks and credit unions in your search.

“Try to gather at least a dozen quotes on rates before making your formal loan application. Also, remember that the ultimate in service from a mortgage lender means you get access to the best available rate and terms on your loan,” Gumbinger says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

After taking her employer’s early retirement offer, an engineer in her early 60s -- an ardent tennis enthusiast --began attacking her bucket list. As her first check-off, she flew to Paris for the 2022 French Open.

Upon her return from France, the engineer -- who was recently widowed -- took a closer look at her financial picture. In particular, she reasoned this would be the ideal year to sell the contemporary lakeside house she and her husband had custom designed 27 years ago.

“This fabulous seller’s market can’t last much longer, especially now with the economy weakening and mortgage rates rising. That’s why I want to sell this year to avoid missing the boat entirely,” the widow says.

Like a number of other homeowners, she worries the rise in home valuations that’s occurred since the start of the pandemic is unsustainable. She would love to hang on to the lakeside property -- to which she’s emotionally attached -- but fears waiting to sell will cost her.

“Some people think we’re in a bubble and home prices will plummet like they did more than a decade ago during that big surge in foreclosures,” says Mark Nash, a real estate analyst.

Actually, many housing economists are skeptical that home prices will fall in the near future, eventually ushering in a buyer’s market. They contrast the current period from the last major recession, when homebuyers ruled.

“Although the Great Recession was triggered by a housing crash, it’s an outlier in the grand history of recessions, which have often strengthened investment in housing, due to its relative stability as an asset,” says Nicole Bachaud, an economist with Zillow, the national real estate company.

Zillow recently conducted a survey of housing experts, who were polled on whether they believe the real estate market is in a bubble. Of those surveyed, 60% do not believe the U.S. housing market is currently in a bubble, compared to 32% who disagree. Eight percent aren’t sure.

“Americans have seen home values rise at record rates over the past few years. But although a recession is looking more likely, the housing market today is a far different beast than what we saw in the mid-2000s,” says Bachaud, noting that lenders now require much stronger income and credit metrics before approving mortgages. Also, available homes are in short supply relative to demand, especially from young-adult purchasers.

Still, the retired engineer -- who is risk averse when it comes to financial matters -- doesn’t want to chance a delay in the sale of her home. She recently called in three real estate agents and plans to soon list with one of them.

“My only large concern about selling now is that it’s very hard emotionally to let go of the house where my husband and I had so many happy years,” she says.

Here are a few pointers for sellers:

-- Conduct a wide search for your next home before selling.

With more than 20 years of experience selling real estate behind her, Ashley Richardson, of the Long & Foster realty firm, has gained a key insight into the emotional bond many people have to a longtime residence. She says it’s often possible to transfer this attachment to another home.

Consequently, she recommends that sentimental sellers start looking for their next residence as soon as they put their property on the market, or even earlier.

“This way you’ll more quickly detach from the house where you’ve been living for a long time,” says Richardson, who’s affiliated with the Residential Real Estate Council (crs.com). However, she urges those making a housing transition to restrict their property search solely to neighborhoods with homes they can afford, so as not to set themselves up for disappointment later.

-- Review your housing plans with your grown children.

Nash, the author of “1001 Tips For Buying and Selling a Home,” says many empty nesters fear that letting go of a long-held property will mean fewer visits from family members -- including their grown kids and grandkids. Yet lots of would-be sellers are also anxious to liberate themselves from the carrying costs of a large property.

To address such fears, Nash says it can be wise for sellers to discuss these anxieties with their offspring. Perhaps future multi-generational family visits could be centered in a resort area where all could spend quality time together.

“You might be pleasantly surprised at the lengths your family members would go to see you on their vacation days,” Nash says.

-- Try to neutralize your property by removing memorabilia.

To break the emotional ties to their property, it helps many people to sort through and remove sentimental items. Nash says you’ll want to cull through your family memorabilia, eliminating all but the most precious of items.

Nash suggests you also give away or pack away many other family-related items, including toys and children’s books. And he recommends you remove family photographs from your walls.

Neutralizing your property will not only help you detach from the place emotionally, but it will also make it easier for you and your listing agent to attract buyers.

“People aren’t going to pay more because your house is filled with memories. In fact, having lots of memorabilia on display will only slow the sale of your property, because it keeps people from picturing themselves living there,” Nash says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)