“When will the real estate market be calm enough for me to buy a home?”

By Martin Brown

Q: Up until this subprime crisis, I was starting to think seriously about buying a home. But now I’ve been scared off by all the stories I see and hear on the news. Should I jump back in at some point and start looking again or is it better that I rent?
A: The purchase of a home is often the biggest financial decision any of us will make. Of course, in every financial decision, single women run up against added hurdles, whether they be gender stereotypes or glass ceiling issues.

Will this affect your ability to purchase a home? Not at all—that is, if you remember the one essential financial truth has existed for as long as anyone can remember:

Invariably, homeowners have a higher net worth than renters.  

That doesn’t mean that during the years you own a home you won’t see price fluctuations, but if you’re planning to stay in your property for five or more years, it’s rare that you won’t see a return of 10, or 15 percent or more on your initial investment.
Remember as well that all real estate is local. That said, don’t let all the news coverage of the subprime meltdown frighten you away from the prospect of looking closely at your local market, and making an informed decision based on the truths that you see. Be that in Milwaukee, or Palm Springs, Davenport, or San Francisco, each of the thousands of real estate markets is unique. And while it is certainly true that the credit crisis has caused many markets to seize up, an educated guess is that this is a temporary issue regarding liquidity (the availability of credit itself) that should–with the continued involvement of the Federal Reserve Bank–begin to ease in the coming months.
So what does that mean for you the potential buyer?

It means that now is the time to learn all that you can about your local market. Ask your agent for real figures on the existing inventory of homes in the same area where you’re looking to purchase. Then compare it to the three previous years’ statistics. In housing parlance, “inventory” is the average number of months and days that the a property is on the market before receiving an accepted offer.
The variance in that number alone shows why we need to have local knowledge as opposed to knowing national trends. As of early March 2008, just for the sake of example, the national market inventory figure is eight months whereas here in the city of San Francisco it is currently two months. There are markets where homes are selling for 25% of their original asking price and markets where the drop is as little as two percent.
When the media discusses the “national trend,” they’re talking about “Anywhere USA.” As we all know, no such community exists. If I was to tell a sushi lover that seven out of ten Americans object to eating raw fish, do you think that would mean anything to her? Housing is about your neighborhood, and your needs. Surveys are great dinner conversation items, but they are not where the financial rubber meets the road.

I’ve had several questions to my e-mail bag that have asked about picking the right real estate agent. That is a topic onto itself. And I’ll take that up next week, on Money Matters.