Navigating a Cooling Real Estate Market

If the market in your area is cooling (and some definitely are), there are new "rules" for navigating the buying, selling and investing in those markets. It's not the same old game as when the market was virtually guaranteeing that prices would go up.

According to some sources, there are brokers who are advising sellers to price their homes in the bottom 25% of comparable properties. People looking to enter the market for the first time are being told not to overly stretch their finances because rising home prices may no longer provide them with the refinancing option to bail them out. Employees who are relocating are being advised to steer clear of new subdivisions where competition from brand new construction could make reselling difficult in the near future.

Should you be surprised? Nope. Such strategies aren't new; they'd just fallen from favor in many markets as home sales exploded. However, markets have shown signs of cooling. The number of homes for sale has climbed about 30% over a 12-month period, reaching its highest level in nearly 10 years, according to the National Association of Realtors.

The other sign of cooling markets is higher mortgage rates. Those rates are making houses less affordable in many metro areas. Rates on 30-year fixed-rate mortgages now average 6.46%. An expected increase by the Federal Reserve could push mortgage rates even higher.

What does this mean for you? That varies from area to area. To be sure, sales are strengthening in some markets where economic growth and an influx of investors have helped to push home sales.

But be watchful where you are. In many parts of the country, after several years of sellers calling the shots, 2006 is shaping up to be a market in which buyers are gaining bargaining power. If you are looking for a property, this could be good news.

Michael

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