Home Buyers: Make Offer Now or Wait for Significant Price Drop?

It’s a buyer’s market.

That’s a refrain countless hopeful owners have been hearing a lot lately - but does it mean they ought to begin the process of sorting through home mortgages now … or wait longer for prices to fall further?

A new report on RealEstateJournal.com, The Wall Street Journal’s guide to property, considers this issue.

Last summer, price appreciation rates were running at double-digits in many parts of the country. Investors knew that in nine months or a year, when the project was finished, they could flip the unit to a new buyer at a profit. A year later, in July 2006, new-home sales were down 21.6%, housing starts decreased 13.3% and permits were down 20.8%.

Inventories of unsold new homes are now at a 6.5 month supply, an 11-year high.

“The recent downturn in housing prices may enable home buyers to negotiate extra incentives from new home builders,” saidLauren Kim, senior editor. “Keep an eye out for ads for your project, to see if the builder is offering any new buyer incentives, like buy downs on mortgage interest rates or free finished basements.”

Because buying a home is a major financial commitment, buyers in today’s market are understandably worried that their new home’s value will fall – before they even move in. However, a report by Harvard University’s Joint Center for Housing Studies notes that sharp declines of 5% or more seldom occur in the absence of severe overbuilding, dramatic employment losses or a combination of the two.

Closing thoughts: Home buyers should balance the risk that home prices may fall with the reality that they’ll never be able to anticipate the exact moment that prices will reach bottom.

“The best buying opportunities come when markets are down and sellers are a little more accommodating,” says Ms. Kim. “Do your homework before you buy, and be prepared to hold the property for a long time if you want to realize large gains.”

In the end, look into pre-approval on a home mortgage as soon as you have an inkling to buy. You should always be prepared to make an offer because there’s no telling what the market will bring. Follow your instincts.