Home buyers are dusting off their negotiating skills and getting serious again because while interest rates are slowly rising, the pace of home sales is expected to temper this year and the surge of new homes on the market has given them more bargaining power.
With inventories growing and days on the market increasing as well, the pressure for sellers to attract buyers will intensify — evidence that the fundamental barometer of supply and demand has already tipped in favor of the buyer.
And even though median home prices are still expect to rise five percent in 2006, listings are now selling below asking price for the first time in years.
Interest rates, while on a slow rise, are still relatively attractive, and according to Joy Cabildo, vice president and division manager at First Hawaiian Bank, are only predicted to increase another half point in 2006.
“The great part is, rates really haven’t gone up much yet,” says Cabildo. “At 5.875 this week, it’s an ideal time for buyers to take advantage of the recent shift in market — from a seller’s market to more of a buyer’s market — find a property, and take advantage of the opportunity to get more bang for your buck.”
Determining what type of loan program is best depends on the individual needs of the buyer, she says. But she adds that in a rising-rate environment, more people are opting for fixed rate mortgages. Homeowners intending to remain in their current homes for the foreseeable future would be wise to convert their existing ARMS to fixed-rate loans.
“It’s not one size fits all,” reminds Cabildo. “If you are planning to die in the property, for example, then an adjustable rate mortgage (ARM) is not the loan for you.”
But, if the buyer is purchasing a stepping-stone home and plans to sell it and trade up in a couple of years, the money saved in monthly payments on an ARM may be worth considering.
“I would generally advise a fixed rate mortgage vs. an ARM in a rising-rate environment if the buyer’s intention is to retain the property for seven to 10 years,” says Cabildo. “Most people with existing ARMs have already converted them to fixed rate in those cases.”
As far as new purchases are concerned, Cabildo believes the market is probably as buyer-friendly as it will ever be. In that interest rates are still available for less than 6 percent on a 30-year mortgage and sellers are competitively reacting to the pressures of a slowing marketplace, buyers may be well positioned find opportunities and renewed hope in the months to come.
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