Renters Want To Be Buyers

CT Foreclosure & Real Estate News

JOHN BOORJIAN, a 25-year-old financial analyst living with his parents in Canton, would like to buy his own house or condo. But is now the right time? Will prices fall more? Will interest rates start rising, and mortgage lenders want higher down payments? In the background are his parents, Diana and Richard Boorjian, on the front steps of their home. (STEPHEN DUNN / March 28, 2008)

By THERESA SULLIVAN BARGER |Special To The Courant

Here's the situation: You're renting, but ready to buy a house. Single-family home and condo prices are dropping, and they are projected to slip further. Historically speaking, interest rates are fairly low, but some forecasters predict they could rise if inflation takes hold.

Should you wait? Should you buy?

That's the question 25-year-old John Boojian wrestles with. He's been casually looking to buy a house for six months, but he's not finding what he wants within his budget.

"The interest rates are going down, and it's a buyer's market, but in Connecticut, I haven't seen prices go down," the financial analyst said. "What's stopping me right now is, I'd like to see prices come down." He said he follows the financial and real estate news but wonders, "Are mortgage rates going to come down now? If I don't jump now, will rates go up?"

Economists, real estate agents and others who follow the real estate market offer differing views, but concur that there is no one right answer for all people.

Most analysts predict that home prices in Connecticut will drop further. Home prices in the state were inflated and are now correcting, said Fred Carstensen, professor of economics at the University of Connecticut.

In Hartford County, single-family home prices declined about 2.5 percent in the fourth quarter of 2007 and condo prices slipped 1.4 percent, said Professor John Clapp of UConn's Center for Real Estate and Urban Economic Studies. Rental rates are fairly stagnant, he said.

Whether a renter buys now or waits for prices to drop further depends on each individual's risk tolerance balanced with lifestyle preferences.

So, what's a renter to do?

"Wait, absolutely," Carstensen said. "There's no reason at this point to believe that prices won't continue to drop over the next several months. If you're currently a renter and you want to buy, you certainly should be looking around at what comes on the market and monitoring prices." Sale prices, not asking prices, are a more accurate reflection of the market.

Economist Nick Perna, economic adviser to Webster Bank, said his most optimistic projection is that "maybe house prices will stop falling this year. I don't think that house prices will rise in 2008. I say this keeping my fingers crossed."

Economist Peter M. Gioia, of the Connecticut Business & Industry Association, predicted a "broad-based appreciation in 2009," with single-digit appreciation in the first half of 2009.

All three said that people hoping to purchase their first home should wait for the right house in the right neighborhood at the right price.

Location, Location, Location

The old "location" mantra is especially important now because some communities are going to experience a larger price drop than others, Carstensen said.

Real estate agents suggest that buyers look in towns where they want to live for at least five years and where they can see their children (or future children) attending school. Even if home values drop and are slow to recover, they won't feel forced to sell at a loss if they like their community.

Boorjian, who grew up in Canton, said he would like to buy in his hometown but can't afford it.

"I looked at a one bedroom, one-bath, 730-square-foot condo in Canton; they were asking close to $160,000. I know it's all about location, but still, that's a lot of money for a little space."

He's looking in West Hartford, Bloomfield, Windsor and Bristol, where home prices are lower. He knows that prices could drop after he buys, he said, so he's taking seriously the advice to to pick a place where he could see himself living at least five years.

Carstensen cautioned against buying in a neighborhood with a significant number of foreclosures. (There are websites that follow foreclosures; you enter a ZIP code, and all the streets with houses and condos in foreclosure or pre-foreclosure will be listed.)

"If you're looking to buy, unless you have an appetite for risk, you want to look at the condition of the neighborhood," he said.

To Wait Or Not

Renters who wait may risk paying higher interest rates, Carstensen added. "While I'm saying you need to wait and watch what's happening, pay attention to inflation. The dollar is falling. The price of foreign imports is rising; energy costs are rising. … If inflation takes hold, then interest rates on long-term securities, on things like mortgages, are going to go up."

But Perna disagrees. "I think the mortgage situation should get better and rates should start coming down a bit when the anxiety starts to leave the credit market."

Before looking, get pre-qualified for a mortgage and lock in a rate, Carstensen said, negotiating for as long a period with that rate as you can get.

Mortgage standards have tightened, so buyers should clean up their credit and expect to make a down payment, Perna said. Lenders now want 10 percent to 20 percent of the home's value, Gioia said, and require income verification.

However, first-time buyers who qualify for a purchase through the Connecticut Housing Finance Authority can put as little as 3 percent down, said Philip Defronzo, owner of Norcom Mortgage in Avon.

Economists predict that when home prices start to come back up, they will rise slowly. "I don't think there's a lot of risk in waiting a few months, maybe a little bit more," Perna said. "I think now people do have a bit of leisure."

A Buyer's Market

In a buyer's market, people have the luxury of waiting for the right house at the right price.

First-time buyers can improve their odds by selecting styles that are always popular, such as ranches, said Kurt Potter, a real estate agent with RE/MAX East of the River in Glastonbury. Homes with at least three bedrooms and a basement are easiest to resell, he said. Even though the condo market has not dropped as much as the single-family house market, he said, a single-family house is a safer bet in this market.

Buyers who can't afford their ideal house in their ideal neighborhood are advised to buy a fixer-upper in a better neighborhood, Potter suggested. Houses in towns with good school systems hold their value better, agents said.

"When you've exhausted the inventory in your price range, don't try to stretch to the next level," said John Zubretsky, president of Century 21 Access America, based in Wethersfield. "Don't go to those six-month or one-year variables" — mortgages with interest rates that may rise quickly.

At the same time, he says, "Don't settle for something way less than what you want in a house."

Wait until something comes on the market and be ready to act when it does. In the meantime, save as much as you can toward a down payment.

That's what Boojian is doing. He's living with his parents, waiting for the right house at the right price. "If the property fits what I can afford, that's when I might jump," he said. "I'm in no rush. There's always a concern that prices will go up, but either way I'm still saving."

Tighter Inventory

Several agents said that despite it's being a buyer's market, the number of homes for sale is not as high as people would expect.

"Inventory is so low," said Julius Fialkiewicz, owner/broker of Realty Works in Canton. There are 85 houses for sale in Canton, he said, down from the usual 100 at any given time.

People who don't have to sell are not listing their properties, said agent Janet Phelps of Prudential Connecticut Realty in Simsbury. Properties on a busy road or in need of work are taking longer to sell, but when starter houses and condos in move-in condition in desirable neighborhoods come on the market, they are "flying off the shelves," she said.

Clapp, of UConn, concurred: "What I've heard is that really well-located, mint-condition properties are not down in value that much and are selling very well," he said.

But there are sellers anxious to move, he said, which means savvy, patient buyers can find deals — but not steals.

Don't expect to get fire-sale prices, agents and economists said. Phelps recently had clients who made low offers on two houses in Simsbury and lost both. So when a house that met all their criteria came on the market, she said, they offered close to the asking price and ended up with a signed contract.

"'Lucky' people are usually people who put in the effort," said Carstensen, the economist. "This is an environment in which people who are prepared are going to have some really good luck. There may be some really nice opportunities," he said. "You ought to be buying a home where you're going to be happy: That's worth a lot."

 

 

 

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