Experts See a Buyer's Market For Houses in Most US Areas

SALES of both new and existing homes have fallen sharply, reflecting a slowing in the United States economy. But that's good news for many prospective home buyers, according to several real estate experts.

"This is definitely a buyer's market," says Richard Loughlin, president of Century 21 Real Estate Corporation, based in Irvine, Calif. Century 21 has 5,000 real estate offices in the US.

"Inventories [of existing homes for sale] are not huge, but they are ample; when you get the extra supply, then that can mean that prospective purchasers can negotiate for a better price," says Frederick Flick, an economist with the National Association of Realtors in Washington.

A 2.7 percent drop in new home sales in April partially reversed an increase of 5.1 percent in March. Sales of existing homes, the NAR reports, tumbled 6.4 percent in April to their lowest rate in more than three years. The drop in home sales occurred despite a modest dip in interest rates; the average rate on a 30-year mortgage is now around 7.7 percent. That's down from slightly over 9 percent at the start of this year.

Unfortunately, "there's a public perception that rates are still heading up," following the seven interest-rate hikes undertaken by the Federal Reserve in 1994 and '95, Mr. Loughlin says. "People ... don't have as much confidence in the US economy or their jobs." That "uncertainty" is what is making so many potential home buyers skittish.

"We're expecting a little rebound [in sales for] May, June, and July," Loughlin adds. "Still, we think that there will probably be a reduction in overall [industry] sales of around 7 percent to 10 percent during 1995."

Yet, realtors say, the underlying fundamentals of the housing industry are promising for buyers. "Housing prices haven't increased much in the past few years, and mortgage rates are affordable," says Craig Carlson, who heads Marie Carlson Real Estate Inc., in Bronxville, N.Y.

In the case of new homes, there is currently a seven-month supply, assuming sales continue at the present rate. For existing homes, there is an eight-month supply. Home prices have held fairly steady. According to the NAR, the median national price for an existing single family home was $107,700 in the first quarter of 1995, up only 0.1 percent from the same period in 1994. Home prices can vary dramatically by city and region.

Experts cite three basic factors for prospective homeowners to consider when buying a house:

*Affordability. Weighing one's ability to handle a mortgage commitment is crucial. A buyer should be able to earmark no more than 28 percent to 30 percent of his or her gross salary to mortgage payments (principal and interest), plus insurance and property taxes, experts say. That yardstick will largely determine the type of home one could buy and the appropriate community where the home is located.

Generally, the larger the down payment, the lower the monthly mortgage payment. Sometimes one can buy without having a down payment, such as by renting with an option to buy. Or you could have a shared equity arrangement; the person making the down payment, such as a close relative, might qualify for various tax write-offs. But the person making the monthly payment would still receive the annual tax deduction on mortgage-interest payments.

*Location. Once you've identified a suitable location, you will need to narrow down potential properties. A well-established realtor can help you do that. But a real estate agent most often represents the seller in any deal. Thus, you may want to consider using a buyer's broker - someone who represents the purchaser. "Who's Who in Creative Real Estate" is a national listing of some 1,000 buyer's brokers. It can be obtained by calling 1-800-729-5147. The cost is $27.90, including shipping and handling.

If you find a house you like, consumer specialists say, have it inspected. Licensed inspectors can be found in a local telephone book.

*Financing. Once you've identified the house of your dreams, you will need to muster up financing. HSH Associates, based in Butler, N.J. (1-800-873-2837), can provide a complete listing of lenders offering competing mortgage rates in your area. The $20 listing is updated weekly.

If qualified, don't overlook Veterans Administration and Federal Housing Administration loans, which can have lower interest rates. And many experts suggest that a person obtain a preapproved mortgage from a lender before actually bidding on a house.

"There's no doubt that the prearranged mortgage is the way to go," Mr. Carlson says. Sellers like them because they know that they can count on closing a transaction quickly.

Finally, experts stress, it is important to identify all potential fees, including mortgage points, which are demanded "upfront" for taking out a loan. Points can sometimes be added to the sales price of the house, and then the seller takes the extra revenue and pays the points to the lender. Ultimately, the buyer pays the points as he or she pays off the mortgage. Closing costs typically run between 5 percent and 7 percent of the total dollar amount financed.