Community News

Market correction. Market recovery.  Buyer’s market. Seller’s market. People always want to know where in the real estate cycle we are currently positioned.  Although there are definitely leading trendlines, there is still no perfect crystal ball. For those of us in the business, we pour over monthly figures and listen to the experts on a daily basis, while always keeping in mind that real estate is local. Let’s look at some national trends and finish with local indicators and some recent statistics.

That said, there are many indicators that younger home buyers and/ or first-time home buyers will lead the charge into a housing market recovery. The National Association of Home Builders (NAHB), along with Builder magazine, produced a webinar featuring real estate experts who feel that Generation X (defined as young families and adults ages 31-45 years) home buyers are readying themselves to move forward on purchase decisions. Though this demographic only makes up 32% of the population considered “home buying age”, they are mobile, fully into their careers, and often looking for a room to grow for families. The Baby Boomers make up a larger percentage (41% of potential buyers) but appear to be holding off on retirement and therefore holding off on downsizing. 

As for first-time home buyers, though inexperienced, they have an opportunity to learn the ropes of homeownership in a market with affordable prices, abundant inventory, and historically low-interest rates. Move, Inc., a leader in online real estate, created a “reality checklist” which was developed to help potential home buyers decide if they are ready to take the plunge. Highlights of this checklist are as follows:

Get your financial house in order. Know your current credit score and take steps to improve it if possible. Have money set aside for not only a down payment but closing costs and unforeseen expenses after closing. Though these amounts could vary based on how a contract is negotiated, having a reserve is paramount to a smooth purchase. 

Don’t fall in love with a house you can’t buy. The first step should always be to determine how much of a loan you can afford. Find out about the different types of loans you qualify for (such as FHA or government-sponsored first-time home buyer loans) to establish guidelines on down payments and closing costs. Know how your new mortgage payment, including taxes and insurance, will fit into your total budget before you start looking at homes in any price range.

Learn the lingo. Especially in the financing arena, a first-time home buyer must be familiar with common terminology. For instance, ARM (Adjustable Rate Mortgage), GFE (Good Faith Estimate), REO (terminology for bank-owned properties), and Short Sale (when a seller owes more than the property is worth) should not sound foreign.

Mortgage knowledge. Sue Stewart, senior vice president for Move, Inc., succinctly states, “If you want to land the best mortgage that fits your needs, start early, educate yourself on your financial situation, get your documentation together, and find a lender you trust.”

Find a REALTOR® and go shopping. Be very specific about your realistic budget and the most important details that you are looking for in a home, and then let the fun begin.  Viewing homes both online and then in person is the most exciting part of the home-buying process, so make the most of it.

First-time home buyer resources. These are plentiful. Use them. Check out Realtor.com, MortgageMatch.com, Move.com, or numerous other sources or home buyer courses available. 

If after investigating the options and going through the checklist you decide it is not quite the right time to buy, still make plans for the future. Perhaps set a reachable goal of a new target date, keep strong credit or improve if needed, stabilize work history if necessary, continue reducing debt, and resist making any big-ticket purchases that are not essential.

Owning vs. renting. Another point to address regarding first-time home buyers is to do a rent versus own analysis. The top pros of purchasing a home include having income tax write-offs and building appreciation over the long term.  However, with current market conditions, the actual monthly cost of owning a home has become even more attractive. Very rough estimates of purchasing a home for $250,000 with 20% down at a 5% interest rate give a monthly payment of principal and interest around $1073 with taxes and insurance added to that amount.  Even utilizing an FHA loan with 3.5% down for the same property gives a monthly payment of $1295 for principal and interest. This payment range would be very comparable or in some cases less than renting a similar home in the Bozeman area. For a couple of sites to assist in the analysis, check out http://realestate.yahoo.com/calculators/rent_vs_own.html and http://www.bankrate.com/calculators.aspx.

So let’s break down our local “entry-level” market, which will be defined as homes under $275,000 for the purpose of this article. For the six-month period ending March 26, 2011, there were 304 single-family and attached housing units sold in the Bozeman and Belgrade markets. Single-family homes both under and over an acre comprised 185 of these sales.  These homes were on the market for an average of 106 days, with an average sales price of $201,722, and were positioned to sell, earning 96% of the average asking price. A further breakdown shows 49 of the homes were bank-owned/foreclosure properties, 23 were short sales, and the remaining 113 were standard sales.  There were 119 townhome/ condo sales during this same time period reporting an average day on the market at 104 days. The average sales price was $137,429 which was 94% of the average list price. Thirty-seven units were bank-owned, 12 were short sales, and 70 were standard sales. 

What about the leading indicators in our community? Many of the trends are pointing toward “stabilization” in the entry-level market. Inventory levels are at a 4-year low, and the number of sales for the first 2 months of the year is up over 70% within the city limits of Bozeman. Median prices and average prices are also up year over year in Bozeman. We are starting to see new construction “springing” up on a limited basis in this segment. Many other areas around the US are still showing declines in the first quarter sales of 2011 in comparison to 2010, due mostly to the lack of first-time home buyer’s tax credit which was in effect through April 30th of last year. Our local market in the entry-level arena is quite robust and bucking many national trends.