The RIght Time for a First-timer

Never owned a home before? The doors are open for buyers in the Cleveland real estate market.
Today’s first-time homebuyers are generally younger, well-equipped with a variety of loan options, and face a bombardment of for-sale listings to choose from in Greater Cleveland. With low interest rates and even lower prices on property, buyers can afford more sticks and bricks — and entering the market is easier than ever before with aggressive sellers anxious for offers, and creative programs designed to get keys in first-timers’ pockets.

“Now is a great time for first-time homebuyers because you have a rare combination of affordable housing and low interest rates — that is not common,” says Carl DeMusz, president and CEO of the Northern Ohio Regional Multiple Listing Service (NORMLS).
According to current market statistics, which dictate home-price drops of about 5 percent, buyers should get more house for their dollar, DeMusz notes. “You have to live somewhere anyway, and the low interest rates and low home prices makes buying more affordable than renting in many cases,” he says.

Who’s First?
For buyers like Becky Tama, 25, who works at NovaStar Financial in Richfield, the right time to start paying a mortgage was last year.
“It was a steal — it really was,” Tama says of her Lakewood duplex. Listed at $145,000, Tama and her boyfriend talked the seller down to $120,000. The couple wanted an investment property they could live in now and rent out in a couple of years. “We want to build sooner or later,” Tama says, figuring the appealing interest rates and available housing stock in Lakewood positioned her to enter the market early and start building equity so she could eventually purchase her dream home.
Negotiation wasn’t difficult, but choosing the property was. Tama toured 15 to 20 properties before finding one on Wascana Avenue in
Lakewood, which is near main thoroughfare Bunts Road. “There were two homes on the street for sale, and the tenant was already downstairs, so that was golden,” Tama says.

Tama wasn’t a complete novice to the opportunistic market thanks to her exposure to real estate lending at NovaStar, which works with clients like her to secure home loans. She knew that basically, low home prices and a soft market mean one thing.
“Lots of choices,” relates David Reddy, an agent with Keller Williams Greater Cleveland West, who worked with Tama to find her first home. Before purchasing, her monthly rent cost more than a potential mortgage payment, which is not unusual these days, Reddy notes. “If you are going to pay $700 or $800 in rent, you can afford a home,” he says. “If that payment is what you are comfortable with, there are homes in that price range available where you can actually get a turn for the dollar.”

Robert Simons, professor of urban planning and real estate at Cleveland State University’s Levin College of Urban Affairs, says now is the time to buy if you will live in the home long enough to see a market rebound, which likely will occur several years down the road. “If you buy low, and in a couple of years we get a positive correction [in the market], you could see a nice increase,” he says.

Meanwhile, the abundance of listings is cultivating a choosy — and somewhat hesitant — buyer. Some patient buyers are waiting to see whether prices drop even lower or a better home goes up on the market, says Cecilia Sherrard, an agent with Realty One Real Living. Before, a typical client looked at six homes. “Now I will show 20 to 30 properties because buyers can increase their expectations and demands,” she says. “They know what they want and they can get it.”
What else is different about today’s first-time buyer?
“People have less of a concept of a ‘first home’ and more of a concept of getting exactly what they want,” says Pam Wetula, a lender with Real Estate Mortgage Corp. in Rocky River. “Expectations tend to be higher in a buyer’s market,” she says.
In the current environment, buyers want low prices to drop further, interest rates to stay steady, and for loans to be available to them despite borderline credit. In many cases, these assumptions are correct.

Sherrard reassures homebuyers who question their entry into the market by asking, “Are you serious? I can do this?” Her simple response is “yes.”
Open Doors

Reddy’s clients weren’t always so young. “I notice people in their early 20s stepping up and making that investment,” he says. He attributes some of the interest to the media’s focus on real estate as a viable investment.
Tama, herself in this age group, says many of her friends are purchasing homes now, too. And at the mortgage company where she works, she also sees younger buyers seeking loans. “I’m surprised at how many first-time homebuyers were born in the 1980s,” she jokes.
DeMusz’s explanation for freshman buyers is more sobering. “We are the generation of credit,” he says. “Years back, when our parents and grandparents thought about houses, they had to save a lot more money and come up with 20 percent down.”
Today, zero money down, flexible loans and government programs help first-timers with less mature bank accounts buy homes. Sherrard says young buyers who talk to their parents about the market learn that the interest rates and home choices won’t always be so accessible. Still, buyers with less-than-perfect credit who aren’t comfortable putting money down can still secure loans and build home equity, she adds.
“Today, it’s a different world,” Sherrard says. “People are coming to us and saying, ‘I have no money, I have credit issues, but I want to buy a house.’ The good news is, we can work with people in that situation. They don’t have to wait five years to build equity.”

Wetula works with many first-time homebuyers. She consults with few who have money saved for their first home, “no matter their income level.” Starting capital doesn’t deter buyers with less financial padding from entering the market — and there are helping hands for qualifying buyers, such as programs through the Ohio Housing Finance Agency, which can knock down interest rates by a half percent. Some buyers also can take advantage of less strict requirements on Federal Housing Administration (FHA) loans.

Creative lending programs empower responsible first-time buyers who may not look A-plus on paper but can financially handle the commitment of home ownership. “If you came into my office in 1990, I could tell you in three to five minutes exactly what [loans] you would qualify for. Today, there are many shades of gray,” Wetula says. “These are the best times for first-time homebuyers. Buying is much easier, and there are lots of opportunities out there.”

Homes priced between $125,000 and $190,000 are plentiful, and buyers are holding off. “The number of listings is piling up,” Simons says. “You have unsold listings, expired listings — all this is reason to buy now if you have a job and are bankable.”
Meanwhile, the ratio of total listings to sales continues to increase, Simons points out. A typical 1.5-to-1 listings per sale ratio is now closer to 3-to-1. That means for every three homes with for-sale signs, only one seller will tack up a “sold” banner.
Foreclosures contribute to excess listings, Simons warns. “We have a record number of foreclosures and sub-prime lending,” he says. “Maybe those are first-time homeowners who got in over their heads.”
Simons says Cleveland’s high record of foreclosures should warn would-be buyers that home ownership is a serious responsibility. Before considering a purchase, homebuyers should build a rainy-day savings account. They should plan to stay in a home for a few years, at minimum, to realize appreciation. And they should understand the home-buying process .

“Buying a home isn’t just about the house payment itself,” Reddy warns. “You have to pay for utilities and maintenance. You have to stay within your budget.”
And the market may not be as friendly to investors who want to “fix and flip” a home. “If you plan on buying a home and turning it around in a year, who’s to say it will turn around that quickly?” Reddy asks.
Economic Outlook
Considering the housing boom and bust in other areas of the country, the Cleveland market is a stable, predictable place to invest. Fortune magazine’s Real Estate Survival Guide called Cleveland a “safe haven.” Homebuyers in this area assume less risk in their real estate ventures because there is less up-and-down price activity.

“Home appreciation in this area averages 3 [percent] to 5 percent each year, so there is less danger in Northeast Ohio than in other areas of the country,” DeMusz says.

But how long will the market favor buyers, and are interest rates headed upward? 
Historically, interest rates tend to rise, DeMusz points out. And the local economy, undergoing a shift from manufacturing to technology, medical and service industries, will improve over time, he adds, optimistically. “Change is happening, and as employment numbers improve, home sale prices and interest rates will rise as they have in the past,” he predicts.  
But really, who knows how long they will hover around 6 percent, Wetula says. “It’s anyone’s guess,” she says. Hers is that rates will fluctuate very little through spring 2007. “But now, the rates are so good that some buyers are lulled into the sense that [low rates] will be down forever,” she says. “If homebuyers are on the fence, they need to take advantage of rates before they jump up. A half-point can make a difference for some people, and they may not qualify for the home they want later.”
Real estate still looks flat here. “We came off a record five years, and we have to be aware of that,” DeMusz says. “There could be another year or two of not seeing the typical appreciation ... but I anticipate appreciation in the next few years.”
Still, some buyers will hold off to see if rates remain stable or hold out on making offers until they’re sure sellers are willing to go rock bottom, Sherrard says. There are plenty of for-sale signs staked in front yards and, for now, buyers control the deal.

“It’s like there is this silence in the air, and buyers know that sellers are going to plummet to the bottom before we see a turnaround,” Sherrard says. “Some buyers are waiting. They are hungry. They want a house. They’ll go in for the kill.”


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