Reluctant Home Buyers? Maybe They're Just Confused

Some prospects are playing the wait-and-see game with interest rates and home prices. Here’s why they should be more motivated to make a move.

October 1, 2007

It’s a buyer’s market, so why are so many buyers not buying?

After all, the government has been working to make homes more affordable. There's an array of recent actions in buyers' favor, from Congress working to expand Federal Housing Administration insurance, to raising the loan buyback limits for Fannie Mae and Freddie Mac. Meanwhile, the Federal Reserve has lowered short-term target borrowing rates, which impacts consumer interest rates on mortgage loans, among other things.

While mortgage applications have risen modestly on lower mortgage interest rates, many buyers continue to bench themselves, waiting for rates and housing prices to dip lower. With all the housing market hubbub in the papers and on TV, they might be struggling to sort out the facts.

What can you do to turn them back onto housing? First off, you need a solid understanding at what’s holding them back.

Market Fears

Here are some of the reasons buyers have been reluctant:

  • Bad press. Headlines in the media bombard buyers with news about a housing slump, skyrocketing foreclosure rates, and falling home prices in some markets — not exactly the type of headlines that give buyers reassurance.
  • Better deals if they wait? Some buyers believe prices will drop farther if they just hold out a little longer in purchasing a home. In an article from MarketWatch, “ Fed's Bernanke Predicts Further Mortgage Turmoil,” Bernanke feeds that notion by saying "more delinquencies and foreclosures can be expected in the subprime, adjustable-rate mortgage market as borrowers face interest-rate resets." Buyers translate this as "Wait to buy! As more homes come on the market, you could get a better deal!"
  • Shaken confidence. In a recent speech about the economy, President Bush cited "some unsettling times" in the U.S. housing and credit markets and sought to assure jittery Americans that the economy is holding up well, despite worries about a recession. Nevertheless, some Americans are unsure whether the housing slump and higher mortgage costs could lead to a recession, as well as the extent the subprime mortgage crisis will have on housing in the coming months.
  • Banking on lower interest rates. While the Fed’s recent rate cut by a half-percentage point may have provided a psychological boost to the markets, many analysts and builders think it will take more cuts — and more time — before the housing market recovers, analysts say. Buyer takes this as: “Maybe we should wait for more interest rate cuts then.”

What Buyers Need to Know from You

Waiting on the sidelines is a gamble. It could mean that buyers miss out on nabbing the best deals at a time when inventory is supple. Here are five things you can tell your buyers:

  1. Interest rates may not come down at the right time for you.
  2. Interest rates are at near-historical lows right now. The only thing that will make them go lower is a recession.
  3. Interest rates may not get low enough for you to buy the home you want. If you want to buy, you should buy in a range where you can get with a fixed-rate loan, unless you know you are going to sell within two to five years. If you get an adjustable rate loan, pay extra on the principal with the savings you achieve on the interest rate. That's about $25 for every 1/8 of a point between the adjustable rate and the fixed rate you could have gotten.
  4. There's no guarantee that the home you want will be available at the same time as the lowest interest rate available to you.
  5. Interest rates could sink to all-time lows, making you a genius. But then again, the home you want will undoubtedly cost more.

Once they have a more complete picture of the housing market and mortgage scene, buyers can make an informed decision on whether or not it's worth the risk of sitting on the sidelines. If they are serious about wanting a home, then now is clearly a smart time to jump into the game.

(c) Copyright 2007 Realty Times. Reprinted with permission.

Blanche Evans is a writer/editor and CEO of evansEmedia. Formerly, she was a senior editor with Realty Times, where she was named by REALTOR® Magazine as one of the most influential people in the real estate industry.