10 First-time Homebuyer Mistakes

Mistake 8: Not Understanding Housing Market Trends

When there are more homes for sale than buyers, prices typically go down, and this is a smart time to buy.
When there are more homes for sale than buyers, prices typically go down, and this is a smart time to buy.
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Even with a clear idea of their own financial status -- what they can afford and how trustworthy they will appear to a lending institution -- many people fail to pay attention to the big picture. If you're anxious to buy now just because of your own financial situation or restrict yourself to a particular location, you may not see the forest for the trees.

The housing market isn't static -- it fluctuates. Sometimes it favors those looking to buy -- a buyers' market. Other times it favors those looking to sell -- a sellers' market. To understand why these shifts happen, let's look at the contributing factors, like supply and demand. Inhabitable or desirable housing can be scarce or in surplus. Low supply increases demand -- and prices -- to favor sellers. On the flip side, when supply is high and there are more houses on the market than buyers, the situation favors buyers. Other factors include interest rates, consumer confidence and the overall condition of the economy [source: Max].

Keeping track of all these factors can be daunting, but you'll find many websites, newspapers and magazines that organize up-to-date information for you. This includes the real estate section of the Wall Street Journal and the National Real Estate Investor magazine, among others. A good indicator of the current housing market is the Housing Market Index (HMI), based on the reports of homebuilders themselves.

Those looking to move from one house to another might have difficulty finding the best time and way to balance a favorable purchase and sell.

For an existing homeowner, juggling buying another home while selling the first -- without taking a loss -- may be challenging. But for first-time homebuyers, the situation is simpler -- wait for the market to shift towards a buyer's market, if you can. But this process comes with its own dangers. For those witnessing housing prices fall, it's tempting to just keep waiting for them to get even lower. Patient buyers will wait and wait until finally, it's too late, and prices rise steeply again. Many warn against this pitfall and recommend that buyers strike when the iron is hot, which can be hard to determine [source: Lewis].

Besides timing, consider how the market changes in your preferred location. Just as housing markets vary with time, they also vary by location. Looking at data about the housing market in your local area might be the best bet in your house hunt. On the other hand, moving to another location may give you significantly better bang for your buck. For the same price you pay for a small house in the city, you can get a bigger house and a large yard a bit farther out.

All this research will give you a leg up in your house search. Being more informed will give you an accurate idea of what things are worth today, and that is invaluable in the negotiations stage.

After they've researched, some people still forget to consider that a home purchase is a two-way street. A buyer looking for an impressive house may forget that he or she must impress the seller, especially during a competitive seller's market. Read on to learn how to do just that.