It’s A Good Time to Buy – Get A New Home Before Prices Rise
Chicago Tribune, link
There has been a lot of uncertainty and change in the real estate market in the last few years. But, one thing those in the know agree on: The housing market seems to be heading in a positive direction.
While that’s good news for the economy it’s also good news for anyone considering the purchase of a new home.
Someone who buys a new home now is in the perfect position, explains Andy Konovodoff, president of K. Hovnanian Homes. Four years ago buyers were at the height of the market and paying a high price for homes. In three to four more years the market will likely be back to higher prices and rates.
“This is the perfect time, right in the middle,” he says.
Mortgage rates are the best they have been in 50 or 60 years, Konovodoff adds.
“My dad had a mortgage in the late 1940s that was 4 percent. I thought I would never see that,” he says.
As a result of the economy, home prices have gone down while everything else has appreciated and interest rates remain low.
“It’s the perfect storm right now,” he says.
Factor in reality
Home prices are still low, but will likely begin to increase as the economy mends.
David Patzelt, president of ShoDeen Inc., says improvements in the industry, such as an increase in home sales, are being seen in markets like Florida that were first hit by the collapse.
“The market appears to have hit bottom and is returning,” he says.
Patzelt says other factors that will impact new home prices include the rental market, which is becoming saturated and driving rental rates higher.
“This will start to push renters back to buyers,” Patzelt says.
Nathan Amidon, division manager of New Home Star, a real estate sales and marketing firm, agrees pricing has come down to a point where owning is more attractive.
“We have seen home sales pick up in recent months, suggesting more people are gravitating back to owning,” he says.
For those who already own a home Konovodoff says a new home could be considered an equity swap. While the home being sold may have decreased in value by 30 percent, so too have prices on new construction.
“It’s a lateral move,” Konovodoff says in terms of the cost, but points out that in return homebuyers are getting new communities, amenities and a place they want to live.
Amidon says new homes are a value right now because the difference in pricing between a newly built home and a resale is not that great and buyers get a lot of benefits from a new home designed to their taste.
Used homes come with their share of costs such as replacing and fixing dated materials and appliances, he says. “New homes don’t have the same risks because all the features are new and come with builder and manufacturer warranties protecting the home owner from these out-of-pocket expenses.”
Commodity or material prices also affect new home prices, says Patzelt.
When housing slowed down many lumber mills closed, Patzelt says.
“Thus, inventories have been greatly reduced. Low inventories on the ground and mill closings has the supply low and thus prices are heading up. When the commodity prices go up, builders will need to start raising prices,” he says.
As the economic downturn hit, there was an oversupply of homes as demand dwindled, explains Amidon. “With demand beginning to increase, as evidenced by the Illinois Association of Realtors statistics showing increased home sales year over year, the opposite will be true,” he says. “Permits in Illinois have dropped by 90 percent meaning there have been very few new homes built over the past few years. Increased demand and very little new home supply will lead to rising prices in the future.”
What’s out there?
Konovodoff says with fewer builders in the marketplace and an improving economy, demand for new homes will also drive up home prices.
Some builders saw a profit late last year and others closed the gap on their losses, he says.
“We’re at the tipping point now,” Konovodoff says.
In an effort to keep buyers interested many builders have been offering discounts, free options and credits.
“This is great for buyers because they are able to really minimize the out of pocket cash to purchase and are able to afford better features to truly make it their dream home,” says Amidon. “I see this as the first thing that builders begin to scale down as costs of these options often can rise faster than those items they include in the base home. These deals are still out there right now and buyers should take advantage of them.”
What hasn’t changed during the economic struggles is many homebuilders’ commitment to quality.
Patzelt says during the slowdown ShoDeen took the time to review its product line.
“We analyzed what worked in the past, asked ourselves if it will still work in this new economy, and more specifically do we have what we believe the ‘new home buyer’ is looking for,” explains Patzelt. “As a result we made improvements that include more energy efficient specifications, green building techniques and improved floor plans for the way people want to live today.”
Another sign that the housing market is improving is the continued progress of builders with longevity in the market.
ShoDeen is building on its success with a new community, Elburn Station. It will incorporate many of the building and environmentally friendly designs as ShoDeen’s Mill Creek in Geneva, a master planned community of single and multifamily homes that has been built in stages and won awards for its building standards and environmental features since the late 1990s.
Konovodoff says in 2011 K. Hovnanian doubled its communities by acquiring properties and expects to acquire five more this year.
“Things are pretty active,” he says. “It’s exciting.”