How to Better Tell if the Time is Right to Buy a Home

When demand goes up, so goes the price. But changes in housing markets are normally much more subtle. It can take a trained eye to spot them.

A smart buyer will collect every scrap of information possible on market trends in a neighborhood before crafting an offer on a property there.

In a cooling market you could make a bid under asking price that you wouldn't consider making in a heating-up market, where competition for houses is fierce.

Moreover, a neighborhood that's transitioning from a "sellers' market" to a "buyers' market" could be a place where knowledgeable purchasers can obtain concessions from sellers, such as help paying closing costs.

The key is for the buyer to spot market trends early and act accordingly.

Here are pointers for savvy home shoppers:

1) Look for tell-tale signs of seller motivation.
A spate of recent price cuts in a neighborhood is the surest sign that the housing market is shifting in favor of buyers. Sometimes the words "price reduction" or "seller motivated" will even show up on For Sale signs in front yards.

Wise buyers should also take careful note of the wording in home-sale listings. Some homeowners will telegraph their eagerness to unload a place with offers of seller financing, or help with closing costs.

Also, a neighborhood where open houses are becoming more prevalent could signal seller anxiety. Worried owners will often ask their listing agents to stage an open house more than once.

2) Obtain hard statistics on the area where you're house hunting.
Relies heavily on data when evaluating a neighborhood market. Obtain key statistics on trends in the area.

The very best numbers tell you how long a typical house in the community goes from listing to sale. Realtors call these 'days-on-market' statistics. They're easy for your agent to get.

In a slowing market, the time it takes to sell an average home will lengthen. That's often a strong sign that sellers may be losing some of their pricing power in the neighborhood, he says. Another key indicator of market trends tells you the percentage of list price that local sellers are getting when a deal closes.

If the typical seller got 105% of what he asked a month ago -- but now gets just 90% then you know that prices are softening.

To help chart the direction of a market, buyers should ask for 30 to 60 days' worth of "list-to-sell" price statistics.

A third measure of local market strength involves "inventory," the number of homes currently available for sale. If there's a surge in listings beyond what you'd expect for that season, you can usually assume that buyers are gaining bargaining power.

3) Realize there could be exceptions to broad market trends.
Generalizations don't always apply, even within a relatively small locale, notes Tayler, the author of several real estate books.

Owners who happen to live on a particularly prestigious street, or who have a spectacular setting, can often remain firm on their asking price, even when the overall neighborhood is weakening.

4) Investigate carefully a market where prices are plummeting.
At first sight, a neighborhood with major price drops can excite house hunters. But before rushing in, find out why property is suddenly less costly.

Will a new freeway soon cut through the community, or is a Wal-Mart slated to go in? Answers to such questions can be very revealing.

Granted, virtually all property goes up over the long-term. But is it realistic for you to wait 10 years or longer for a rebound? Still, true bargains can be found in a community that's enduring a temporary economic setback.

5) Avoid making a ridiculously low initial offer.
Maybe you've determined that the market where you're searching is decelerating, making it easier for buyers to bargain. But that doesn't mean sellers will entertain extreme lowball offers. Of course, the owners could always counter a bargain-basement offer. But instead they might simply refuse to deal with you.

Before deciding on your initial price proposal, you should think about the owners' level of motivation.

In truth, you need more information about seller's plans. If they've got to get out of town fast for a job transfer, you can be somewhat more assertive in the price you bid.