What the housing 'rebound' means for you

Homes are selling again, but the market today is divided by price point. Your best strategy depends on where your home sits on that spectrum.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Amanda Gengler, Money magazine writer

Real Estate:
Your local forecast
381 markets tracked
1. Select your state
2. Select your city/market

(Money Magazine) -- Home sales are rising. Builders are buying lots. And prices are no longer in free fall. After so much pain, there are signs of life in the housing market.

But the "recovery" is far from universal. In many cities cheaper homes are selling fast -- but mid-range properties are still lingering, and high-end homes are gathering dust. "The luxury market still looks ugly," says economist Joshua Shapiro at economics consultancy MFR. If you're selling or buying, your strategies should depend on the value of the home you want or own.

The bottom tier (hot)

The lowdown: A big chunk of the 1.9 million post-boom foreclosures have been among the least expensive 35% of homes. Bargain prices on these foreclosures and a new tax credit of up to $8,000 for first-time buyers have lured investors and would-be homeowners back to the market, even in hard-hit areas, says Pat Lashinsky, CEO of online brokerage ZipRealty.

Sales of homes between $100,000 and $250,000 are up 9% from a year ago. Meanwhile, many banks halted foreclosures earlier this year while waiting for details on the Obama administration's foreclosure-prevention plan. Greater demand combined with less supply is providing a strong spark to the market. "Buyers in most areas are now going up against multiple offers," says Lashinsky.

Buyers: See homes the first day they're listed, and if there's one you want, submit an offer immediately, says Phoenix realtor Susan Ramsey. Don't expect a deep discount; prices for lower-end homes are stabilizing. Put down 20% or more, if you can, to compete with cash-rich investors. Offer not accepted? Check in with the seller's agent a few more times; many deals fall through.

If you aren't under pressure to move, keep in mind that the supply crunch is probably temporary. The foreclosure rate is expected to stay at record highs for the rest of the year, and as prices stabilize, more sellers will jump back into the market.

Sellers: Forget trying to compete with foreclosures on price. Some buyers will pay more for a home in move-in condition, so spruce yours up and sell that fact hard in your marketing materials.

Many of the other listings are likely to be short sales in which the bank agrees to accept a price below what the owners owe on their mortgage. Since short sales can take months, offering a quick, flexible closing date will give you another advantage -- and attract first-time buyers aiming to take advantage of the tax credit before it expires at the end of November.

The middle tier (cool)

The lowdown: Demand is soft. That's because the likely buyers are trying to trade up -- difficult for people who bought in the past five years, because they have so little equity. In fact, about a third of all homeowners with a mortgage owe more than the home is worth, according to First American CoreLogic.

Buyers: Unload your current home first, so you know what you can afford to spend on a new place. When you find a home you like, offer 10% less than the asking price -- a realistic discount for a lukewarm market, says realtor Ramsey.

Sellers: If you have to move soon, it's all about standing out from the pack. If your home is sitting on the market, go for one big price cut instead of slowly ratcheting down. A bold move will attract attention and prevent the listing from going stale. Offer to cover closing costs, and since many buyers will be short on cash after the purchase, throw in some necessary improvements, such as new carpeting, blinds, or painting.

If your home is in the half-million-dollar range, try to set the price at a level that doesn't require a jumbo loan, normally $417,000 or less (up to $729,750 in pricey areas). The difference between a $400,000 conforming loan and a $420,000 jumbo loan is several hundred dollars a month. Finally, if you can hang in there, know that prices will likely start to recover within the next 12 to 18 months, says economist Shapiro.

The top tier (cold)

The lowdown: The recession and the credit crunch have almost shut down the top 10% of the market, says Joel Naroff, president of Naroff Economic Advisors. Fewer people can afford a luxury property, and since banks are hesitant to underwrite supersize loans, it's tough to finance them.

Moreover, foreclosures are rarer at this price level, and homeowners, unlike banks, are reluctant to slash their price. Given all that, the prices on high-end homes will probably fall another 10% until the market hits bottom, says Mark Zandi, chief economist at Moody's Economy.com.

Buyers: Get pre-approval before you shop: Jumbo mortgages are tougher to qualify for, require larger down payments (as much as 30% to 40%), and cost nearly a percentage point more than smaller loans. And ask for freebies: While sellers often balk at low-ball offers, they should be willing to negotiate, including paying closing costs and other extras. "You can set the terms," says ZipRealty's Lashinsky. If the seller refuses, move on.

Sellers: You'll need to seriously undercut the competition. (Your agent can provide comparable sales figures for the past three months.) You may want to finance the deal yourself. And motivate buyer's agents with a larger cut of the deal -- a total of 4%, says Sacramento realtor Larry Henderson. It may be painful, but the price of your home is likely to fall further if you wait -- and recovery for your market is a ways off.  To top of page

Send feedback to Money Magazine
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.