Under "normal" circumstances, a consumer's decision concerning what type of home to buy, and when to buy it, is based primarily upon the individual's personal needs and preferences. During certain time periods, however, outside influences take over and occupy center stage.

In times of low interest rates, for example, many more consumers suddenly enter the marketplace as potential home buyers. Out there, right now, are buyers whose principal motivation for purchasing real estate in today's market is the interest rate, not a particular property.

It doesn't take a rocket scientist to figure out why. Lower rates equate to lower monthly mortgage payments. Lower rates allow more people to qualify for loans. Lower rates provide a window of opportunity for home-buying which, for many, will slam shut again, once rates escalate. It comes as no surprise, then, that this particular group of buyers has come out of the woodwork and is earnestly shopping for properties. They are known in the real estate industry as "Highly Motivated Buyers".

Besides low interest rates, the real estate market has been driven by other influences in the past. More than once, consumers have proven that, given the choice between their emotions and their pocketbook, they will opt for the savings.

If this sounds confusing, examine the following scenario. Imagine two identical houses, side by side. They contain the same floor plan, the same lot size, and are offered for sale at the same price.

House A, in great condition, is described in the ads with words like this:

• "Cream Puff!"
• "Mrs. Clean Lives Here!"
• "Move-In Condition.
• "Picture Perfect."

House B, cluttered and dirty, is described like this:

• "Needs Some Work."
• "Needs a Little TLC."
• "Has Great Potential"

Under "normal" conditions, House B doesn't stand a prayer of selling first. However, here are two instances where House B was seen by many to be more attractive than House A.

1981 saw the average 30-year fixed rate at a staggering 18.45 percent. During this period, buyers were looking primarily for "assumable" mortgages (low rate mortgages already in place that could be taken over by the buyer). So, during that time frame, if Dirty House B had the assumable mortgage, and Immaculate House A was subject to the prevailing "nose-bleed" high rates, guess which home was more in demand?

Still another example of the "buy a feature, get a house" phenomenon occurred during the Arab oil embargo of 1983, when oil prices climbed sharply. Long lines and high prices at service stations had consumers avoiding large, gas-guzzling cars like the plague. In the same way, escalating home heating oil prices made properties with oil heat difficult to market. During this period, Dirty House B with natural gas heat would have still been a winner over Clean House A with an oil furnace!

The Moral of This Story.

Where all this is leading is straight to the purchase of real estate ASAP. If history offers any lesson it is this: change is inevitable, and nothing lasts forever. While this truth may be a comforting thought in times of an oil embargo or high interest rates, it should also serve as a warning in eras of economic prosperity and low interest rates. Anyone who is even remotely interested in buying a home should seriously consider moving forward. No one should be complacently lulled into believing that the highly favorable home-buying climate that now exists will continue indefinitely.

Published: September 18, 1998

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