Buying a newly built home

Lowest mortgage rates spur many

There's plenty of doom and gloom surrounding the real estate market at the moment. But there's also a lot of positive news that doesn't receive as much media coverage.

For example, the National Association of Realtors® reported on January 27, 2011 that the trend of the Pending Home Sales Index is showing a continuing rise, and David Yun, the organization's chief economist commented:

Modest gains in the labor market and the improving economy are creating a more favorable backdrop for buyers, allowing them to take advantage of excellent housing affordability conditions. Mortgage rates should rise only modestly in the months ahead, so we'll continue to see a favorable environment for buyers with good credit.

Sales of new homes gaining strength

Sales of newly-built homes have been slow for a while, but there are clear signs that the market is improving. The National Association of Home Builders (NAHB®) recently released its data for December 2010, and these showed that the number of newly-built single-family homes sold that month leaped 17.5 percent. It says that this translates to a seasonally adjusted annual rate of 329,000 units.

A couple of weeks before publication of those numbers, David Crowe, who's the NAHB's chief economist, forecast that single-family home starts in 2011 would reach 575,000, up 21 percent over the estimated 475,000 units begun in 2010. That was already seven percent higher than the 442,000 homes started in 2009.

The NAHB's press release quoted Freddie Mac chief economist Frank Nothaft as observing: "Potential buyers who have resources to buy but want to buy at the bottom are likely to start coming into the market in the springtime."

Current mortgage loan rates a big factor

Fannie Mae's "Housing Forecast: January 2011" provides some clues as to why Frank Nothaft's prediction may come true:

• It expects single-family home starts to jump to 1,165,000 units in 2013, up 144 percent on 2010
• It thinks the median price for newly-built homes will increase from $217,000 in the current quarter to $228,000 in 2013
• It forecasts the average 30-year fixed-rate mortgage rate to rise from 4.9 percent this quarter to 5.7 percent in the last three months of 2012

Many believe that current mortgage rates are likely to rise, albeit gradually. And it's certainly hard to see how they could fall much further.

Hints for buying a newly-built home

New homes have some nice advantages. You can choose your own finishing touches. There is no wear and tear. Builders trying to manage cash flow may offer deals that other sellers won't.

The legal advice website FindLaw® offers some useful hints to those buying a newly-built home. These include:

• Check out the developer/contractor with neighbors, previous purchasers and the BBB before signing anything; too many use cheap materials, provide shoddy labor, and are bad at meeting deadlines
• Hire an independent contractor or inspector to visit the site at key milestones during the construction process
• Don't pay for unnecessary upgrades/options/add-ons; stick with what you need, at least at first
• Make sure the developer's prices for those upgrades/options/add-ons are good value for money, and don't be afraid to beat them down
• Consider buying a new home warranty from a third-party insurer, especially if you don't wholly trust your developer
• Don't close escrow until the property is fully complete and you're entirely happy with it

Mortgage quotes--get some now

If you agree with those experts who expect a resurgence in buying this spring, you probably don't want to wait until then to act. There's a good chance that your negotiating position could be stronger if you act now while there are still fewer buyers around. As always, you can find mortgage calculators and competitive mortgage quotes on this site.