I've been getting asked this question now more than ever: "Is now a good time to buy a house?" Many buyers have been waiting for the bottom of the real estate market to hit before getting off the fence to make that next real estate purchase. When it has been officially deemed a buyers market by all the national real estate associations -- then yes, it's a good time to buy. You just better hope you haven't waited too late.

Fortunately for buyers, sellers markets must build while buyers markets happen overnight. For the metropolitan Washington DC area, that was June 2005. At that time, top producers from all over started reporting it was as if everyone just stopped coming by the houses.

Statistically, the whole build-up of the buyers market began in January of that year here in this market. For one of the submarkets, here's how it looked. In the Northern Virginia are (comprised of Fairfax and Arlington counties and the City of Alexandria -- the three closest jurisdictions to Washington, D.C.) only 1,193 homes were active on the market January 2005. The interesting part is that 1,740 houses went to settlement that month. Thus, the absorption rate was less than one month's supply of houses. (All these statistics are coming from Metropolitan Regional Information Systems, Inc., the metro area's multiple listing system).

Keep in mind, the 1,193 listings were supposed to serve an area of more than 1 million people. Fast forward to June of 2006, 18 months later -- we had 12,096 houses on the market, creating a sellers market with a 6-month supply of houses. The significance of June 2006 however was that this was the last month in more than a year and a half that the inventory would STOP it's steady climb upward. After that month, the number of monthly active listings began to retreat. And that's what I've been waiting for.

Could it be that the buyers market has begun to subside and we're going to return to the "glory" days of yesteryear? Hopefully not. Having less than a 1 month's supply of houses to serve a community of 1 million-plus, is not healthy. The good thing about the inventory (and this doesn't include the new homes) is that it's now going to take a while to eat up that inventory, which means buyers have a while now to choose from the homes they want and purchase with cheap money.

Ask most realtors in your market area about buyers' and sellers' movement in the marketplace and you'll find out the same result -- buyers are waiting for the bottom to hit and sellers are holding onto prices (or removing their homes from the market).

With this latest analysis, it may be that we've actually hit the bottom. So to answer the question: "Is now a good time to buy?" Here's why I think buyers should get off the fence, get financed and purchase a home.

1. Money is cheap. We have historically low interest rates. Currently, for most borrowers, they can nab a mortgage in the 6-ish percentage range. Depending on the points you want to pay (and for those with good credit), loan rates are from 6.75 and down.

2. Inventory is high. This results in two things -- choice and negotiation power. For sellers who are set to take opportunity by the horns and get moving, the buyer can get thousands off the list price so the seller can turn around and do the same thing. Most sellers, in this market at least, can afford to take a $25,000 - $50,000 hit on the sales price because they'll be able to negotiate the same type deal on the backside of the transaction. (In some communities, there's more than a year's supply of houses on the market.)

3. Income is growing. The stock market is on the march, resulting in a growth of personal income and wealth. This also contributes to the buying power of buyers.

Is it a good time to purchase a home? Well, they don't call it a buyers market for nothing.

Published: November 24, 2006

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