(Story BY Philip H Losey JR -- Realtor / Auctioneer --- ERA Home Towne Realty & Auction)
2010 is the time to buy a new construction! Due to the current economic conditions buying a high priced new construction is the way to go. With interest rates at a historical low, it is time to buy a new construction before the potential inflation hits the economy. The media has sent the message that the foreclosure market is growing and buyers are encouraged to buy bank owned homes. Buying foreclosed property, is a mistake when new constructions are a better buy and are also currently discounted. Despite the fact that building materials are high, already-built new constructions are the way to go. The homes that are already built, called spec homes, are the way to go, because many builders are not looking to make a profit in today's current economic situation. Consumers should use a realtor in their purchase in order to get added protection and the best deal. The final question is where to invest in the market; and the answer is where the fewer sales are being made and that is high priced homes.
The time is now, during this buyers market, to buy a new construction, because there is a good chance that inflation will soon occur. Interest is currently at a historic low 4.5% at 30 year loan with a loan to value of 97% as of August 9th 2010. In 1980, when the economy was suffering a down turn, the interest rate was at 16% and inflation in 1980 was at 13.5%. I am no economist, but it seems logical that a buyer should buy now, because when the economy comes back it is likely that inflation could occur. I am basing my thoughts that there has been so much deficit spending that inflation is a natural side effect. "The total deficit for fiscal year 2009 was $1.42 trillion, a $960 billion increase from the 2008 deficit." (Wikipedia the free Encyclopedia, http://en.wikipedia.org/wiki/2010_Unitied_States_federal_budget). So for consumers who buy at this year's price with low demand, it makes sense that you will gain built in equity. When inflation hits, the economy prices will go up, along with demand. Those who buy now at low interest rates and lower prices will gain equity as a result of the economy.
With the current economic realities consumers should look to buy newly constructed, as opposed to buying foreclosed properties. In this economy, new construction supply is up and demand is down, so you can get a good deal according to national statistics. "Overall construction spending rose in June, driven by record government spending, the U.S Department of Commerce reported Monday. Spending on single-family residential structures, declined 0.7 percent in June, the first time that number has gone down in a year."(Daily Real Estate News August 3, 2010.) Many buyers believe buying foreclosed property are better deals than new construction, however in reality new house are the best deal. New constructions have many advantages compared to the bank owned property sales. With a new construction, you are getting new instead of a property that may have problems or potential problems, resulting from previous owner neglect. In Kentucky, new construction has a 1 year builder's warranty that is required from the day of the sale closing. This means for one year builders will correct mistakes that come up. Also, items such as appliances, and heating and air systems, have manufacture warranties too. The money saved on buying a bank owned property is often not saved during the repairs and rehab that must be done as a result of the property's condition. Another advantage of new constructions, is the fact that you can get into them with less hassle than foreclosed properties. On new construction, you can put up a small deposit; and in Kentucky, often with KHC loans; you can still get into the home with little or no down payment. On a foreclosed property, an individual will have to put up a large deposit and have to wait for a long period of time for the contract to be accepted. Often closing a foreclosed property can take longer than a traditional sale.
Consumers often do not want to buy a newly constructed home, because these buyers have read that building materials are up so the buyers assume that prices on new constructions must also be up. Due to the current economy being slow, there are many newly constructed Spec Homes that were built when materials were cheaper. Builders, who have built what is called Spec homes, have already discounted their properties to get them sold. Many builders understand the slow economy and are no longer seeking profit; they are just trying to get their inventories cleared so as to remain in business. Another advantage to buying a new construction is that if you do not qualify now a builder might do a Lease with an option to buy. If you can not qualify for a loan due to you current credit score, often in one to two years you will, so you can buy a home under a lease with an option to buy. Under this program, the builder will have you put a down payment down, which comes off the purchase price, and then you can rent for one to two years until the buyer can qualify for a loan. In two years, the buyer buys the house at the price it was two years ago. Many times the property has appreciated more than the original contract price, giving the buyer a great deal and equity.
For the protection of the consumer who is looking for a quality Spec home and a good deal, the best way to accomplish this is through a Realtor. Realtors are in contact with most of the builders on an everyday basis, and a realtor knows how the system works. Your Realtor knows which builder offers the best deal on the spec home sale. The fee that is paid to the Realtor is worth the money because the realtor's contract knowledge of negotiation gets you, the buyer, the best deal out there. Realtors often due 30 or more deals each year and can often out negotiate the builder and get the realtor commission plus the buyer's price at the same time. To protect the buyer's interests, the Realtor can make sure in the contract that all the inspections are taken care of, the property is completely finished before closing, and that the transaction is closed quickly.
The best investments are on the larger homes that are newly constructed. There are many homes on the market but where you want to buy is in the price range where the demand is low. In my area, for instance, the median price home is $125,000 and most of the current sales are in the price range of $100,000 to $200,000. There are few sales from $300,000 to $500,000 in the Lake Cumberland area so, when the values go up with inflation, the greatest monetary gains in equity would be in the higher priced homes. See my attached Market Facts & Figures (figure 1) for how my local economy is working.
(Figure 1)
