Buying a Home? Here's What You Need to Know

I’d like to say that I’m over the Housing bust, but I’m not.

I am still angry. Angry at the homebuyers who overbought and then were foreclosed on, the banks that gave out loans to anyone who could fog a mirror, and the government regulators who sat idly by.

You see, it's personal for me.

My home's value is still suffering, but here is the thing, when it comes to your money, you have to set emotion aside and be clear headed.

It’s hard to do that these days with the reports coming out of the housing market. Standard & Poor’s/Case-Shiller housing index jumped 9.3% in February– the most in seven years. With numbers like that, it’s hard not to get excited. But here’s what you need to know, if you plan to buy a home this year.

1. All signs point to a bubble. The government isn’t warning of a housing bubble because the housing numbers they survey when it comes to inflation aren’t home prices but apartment rents, called “Owner’s Equivalent Rent.” What’s worse, the government figures this number using estimates from homeowners. Not exactly scientific. So, if you can’t rely on government numbers, take a look at what’s going on in some of the hardest hit markets during the recession. For example, Las Vegas prices were up 31% year over year in April as inventory contracted. The story is the same in many markets. Less inventory, higher prices.

2. Be prepared for stiff competition. If you’re shopping for a home, you may find yourself competing with professional investors or flippers or all cash offers. This reduces your negotiating leverage.

3. Get the money ahead of time. If you are getting a loan to buy, do the paperwork first. If you have a commitment from your lender in hand ahead of time, your negotiating position will become much stronger.

4. Don’t get caught in a bidding war. Yes, they are happening in many markets across the country. For most of us, a bidding war is a recipe for disaster. Bidders end up overpaying and regretting it for a long time.

5. It’s local. This is the oldest saw in real estate because it’s true! While Las Vegas is showing every sign of a bubble housing market, other markets are not. Survey the local metrics to find out the state of play in the market you want to buy. What are comps? Do similar homes command the same price as the one you fell in love with? What is the going price per square foot? What’s the state of the local economy? Is employment expanding or contracting?