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Are we at the bottom?

Categories: Uncategorized | Posted: January 16, 2009

Good question.  We are definitely closer.  The problem with bottoms is you don’t know you’ve hit bottom until you’ve started to come back up.

 

If you’re in the market for a home, do you wait or buy now? As with everything it depends on your circumstances, needs and length of time in that home.

 

Here are some reasons to buy now:

 

  1. Prices are down.   Depending on the neighborhood, we’ve seen pricing come down anywhere from 3.0% to 6.0% for identical plans from peak prices.  From a construction standpoint, material cost is down as is labor cost. 
    1. The labor component is barely scraping by, so I don’t foresee any major drops there.  I would anticipate the concessions of late disappearing quickly once the market starts to move up.
    2. Material costs have come way down and seem to have stabilized.  We actually had a few increases to begin the year.
  2. Interest Rates are low.  Rates have been bouncing around 4.75% and 5.0% for a few weeks now.  There is talk about rates going lower through government stimulus plans.  Flip a coin on whether this happens or not.  Long term I don’t see how rates can stay this low.  Rates are tied to 10-year treasuries and with the amount government debt being issued; rates are bound to go up.  Basic supply and demand.   For now, don’t look a gift horse in the mouth.
  3. Selection is good.  Sales always slow before permits slow.  This creates an imbalance of inventory.  Permit numbers now show a substantal decrease.  This will cause inventory to come down.  Once it balances out, prices will stabilize and incentives will start to decrease.
  4. First time buyer tax credit.  While the credit is effectively an interest free loan, if you use the credit to lower your mortgage, the interest savings over 15 years is around $5,000.

 

Here are some reasons to wait:

 

  1. Short time horizon.  If you’re only going to be in the house for a year or two, it might not make sense to buy.  Nothing new here.  There are costs associated with selling a home and in the past it took about two years to get the necessary appreciation to cover these costs.  (If you believe prices will bounce off the bottom and that we are close to the bottom, then don’t wait)
  2. A large amount of sitting inventory in the neighborhood.  This could signal that prices could be coming down a little further.  If you like the neighborhood and homes otherwise, try negotiating a good deal on the home.  It doesn’t hurt to ask.  Just keep in mind that if the builder can’t replace the same home for the same price, then specs could come down some on future homes.  For example, if the home you’re interested in has granite countertops, hardwoods throughout, a tile shower, etc., then the new homes might not have some of those features.  Make sure you know which direction the product is heading.

 

As builders, we feel that it is always a good time to buy a home, but right now there are some very compelling reasons to buy.  The Augusta market has faired better then many and has been recognized as one of the most affordable in the country.

 

I hope this helps.  I welcome any comments.

 

Matt Ivey

Caroline Ashe

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