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Buying A Home In Uncertain Economic Times Are you a potential home buyer who frets that the weakening economy could mean a downward drift in home values? Are you fearful you might buy at the price peak and then suffer a loss in value?
Well, economists would like to assuage your fears. They say that unless you're planning to buy in a community where prices have ascended at an exceptionally high rate or where job losses loom, your housing investment should be sound. "This is not a market where housing will collapse. It has a natural floor," said John A. Tuccillo, former chief economist for the National Association of Realtors.
"We're expecting a slowdown in price increases, not a slide," says Gopal Ahluwalia, who directs research for the National Association of Home Builders.
Still, Karl Case, a principal at Case Shiller Weiss Inc., a real estate forecasting company, allowed that current economic conditions makes this a "tricky time to buy" for individuals whose jobs seem insecure. He and fellow economists urge consumers to assess carefully their own individual economic prospects - and those of the community they're considering. That's far more accurate than looking at national trends.
Here are some pointers for would-be-home buyers:
* Think about home values relative to specific communities.
On the plus side is the widely held view that unemployment should stay relatively low, keeping home prices intact for the most part. That's because, as more baby boomers reach retirement age, labor markets should remain tight for many industries across the country.
But, suppose the community where you're planning to buy relies on several new-economy companies, such as dot-coms, which are shedding workers now. Or perhaps it is dependent on a highly cyclical consumer industry, such as auto manufacturing.
Housing values are closely linked to job prospects. To be sure you're buying in an area where home values are stable or continuing to rise, plan to research local job trends in your target community. Case recommended that you check data for your prospective area on the US Bureau of Labor Statistics Web site (www.bls.gov).
Suppose you're planning a discretionary move within the state. If you see that the area where you seek to buy enjoys nearly full employment, chances are good that home prices there will remain strong. Otherwise, you may wish to postpone. "In that situation, I would hold the house I own and wait," Case said.
Meanwhile, it's a good idea to keep a close eye on the value of your current property. Even if you have no immediate plans to sell, you can consult local real estate agents for their opinion on the value of your home.
* Don't rely too much on anecdotal information.
Too often, consumers act on information that is relevant to their freinds, relatives or neighbors but not to themselves. "A lot of people look to their peers and go on herd psychology," Ahluwalia said. Suppose that you and your spouse both have held stable government jobs for more than a decade. Then the fact that your next-door neighbor loses his short-lived position in an unpredictable field, such as the securities industry, shouldn't unnerve you and cause you to drop your home-buying plans.
* Buy based on just one income if you have doubts.
Perhaps your wife has a reliable position as a tenured professor, but your salary hinges on the fortunes of a high-tech company with a cloudy future. Then, ideally, it would be prudent to seek a mortgage no larger than your wife's income would support. That way, if you lost your job, your family could still meet its payments.
Admittedly, this goal is hard to achieve, especially in an area where housing is expensive. Still, you could reduce your vulnerability by taking a somewhat smaller mortgage than you might qualify for.
* Recognize that an uncertain economy can mean buyer opportunity.
For home purchasers, economists see two silver linings in the current picture of economic uncertainty. At some point in the first quarter of 2001, they expect more buyers to be in the driver's seat during negotiations over price and other terms in housing sales. And while they do not foresee a fire sale for housing, they anticipate that competition for choice properties will lessen.
Moreover, mortgage rates are expected to dip slightly below 7 percent by June 2001, making it possible to purchase a grander home with the same size mortgage. "If you feel that you're insulated from the weaker economy, this could be a great time to buy," Lereah said. He encourages buyers with stable jobs to await the opportunities in the coming housing market.
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