Audio Buyers face the end of the hot housing market (story audio) Photos Zumberge: Buyers can wind up over-extended Tom Musil, University of St. Thomas Renting in Roseville More from MPR Twin Cities housing market cooling off, still warm to the touch (11/25/2003) Resources Home Ownership Center of Minnesota Minnesota Housing Finance Agency Community Neighborhood Housing Services CVS Appraisal Your Voice News Forum: Have you bought or sold real estate recently? What was your experience?

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Buyers face the end of the hot housing market
by Jeff Horwich, Minnesota Public Radio
November 26, 2003

Laura, left, and John Rogers attended a weekend home-buyers' education course in St. Paul. Laura says they feel pressure to buy, but shopping for a first home in today's market raises some tough questions. (MPR Photo/Jeff Horwich)

The housing boom of the past few years has left a challenging climate for prospective home-buyers, especially in urban areas like the Twin Cities. Interest rates are low, but rising. The pressure to join the ranks of homeowners is strong. But housing as an investment is looking less brilliant than it has in recent years. Buyers are facing the end of the hot housing market, and experts say it's essential to keep a cool head.

St. Paul, Minn. —

Thinking of buying? Advice for today's market from Gary Zumberge, owner of CVS Appraisals •Don't hop real estate agents. Find an experienced one and stick with him or her. •Get prequalified for a loan, so you'll know your price range and can move quickly if needed. •Don't shop or buy at the maximum of your borrowing capacity. •Look out for bidding wars or multiple-offer scenarios -- they are unusual again. •It's now common for a home to sit on the market for weeks, not days. Don't rush into a deal. •Inspection can be critical. Don't pick a home inspector at random -- get recommendations. •Nearly every first-time buyer can benefit from a home-buyers education class.

John and Laura Rogers are young, newly married and renting in Roseville, just minutes from his job in Minneapolis and hers in St. Paul. They're looking at making the jump from renters to homeowners.

"We really want to, because we know in the next few months or years the interest rate is probably going to skyrocket or go up," Laura says. "Everybody's saying, 'Now's the time to buy, don't wait!'"

John works for Hennepin County, and Laura works for HealthPartners. But matching a starter home to their income means looking far away in places like Red Wing, and even then doing some uncomfortable stretching.

"The difference between giving somebody rent and giving a lot more toward a house -- can we do this? Can we financially swing it? That's one of the main things we're running into right now," John says.

The Rogers are learning what the National Association of Realtors made official in its latest market report. Aside from Pierce County, Wisconsin, every county in the Twin Cities metro area is rated a strong sellers' market. This is not new. But what makes things more tricky now is that home values down the road are likely to increase at a slower rate than they have in recent years.

	Zumberge: Buyers can wind up over-extended

During the housing boom, some metro area homeowners saw home prices go up annually by 15 percent or more. But among real estate professionals, the outlook has changed. Most say prices are unlikely to fall, but appreciation of three to five percent will be typical in the coming years.

The promise of housing as an investment can tempt buyers to stretch their budgets. Gary Zumberge has worked 30 years in real estate, and now runs a home appraisal business in Edina.

"We'll go into some homes, whether it's an entry-level home or a very high upper-bracket home, and you can tell that the people living there have a lot of house, but there's virtually no furnishings," Zumberge says. "They put every last dime they have into the home, and they're living on crates and beanbag chairs."

A home is still considered a solid investment, but predictions for future gains are returning to traditional levels. Buyers' decisions should adjust as well.

"There's been a trend to say, always buy as much home as you can possibly, possibly afford," Zumberge says. "I would be a little more conservative."

Shop fundamentally for a place to live, not just an investment. That's advice from Tom Musil, director of the Center for Real Estate Education at the University of St. Thomas.

	Tom Musil, University of St. Thomas

"If buyers approach the home-buying decision with a commitment to understanding their needs -- what they need in terms of bedrooms, long-term decisions in terms of schools, kitchen size, family room, and integrating those needs with good market knowledge -- they'll be a winner," Musil says.

Another tip -- stay out of bidding wars, as a general rule. They were par for the course during the housing boom. But with homes now typically on the market one month instead of one day, they're more likely to happen as a matter of pure coincidence, and could be a signal you're about to pay too much.

Finally, the best advice for some home-buyers may be not to buy at all. After losing tenants to great mortgage deals, many landlords are holding the line on rent increases.

Denise Gathman teaches homebuyer education courses in St. Paul. She says some students do follow through with a home purchase. But for others, continuing to rent is the smarter financial move.

"You've got the other ones that walk away and say, 'I don't want the responsibility of owning a home.' And that's just as successful in my world as the ones who end up purchasing," Gathman says.

John and Laura Rogers, the young married couple, are mulling over that advice. With their rent held flat for two years, and today's home prices pushing them to locations more than an hour from their jobs, John says maybe waiting a while longer makes sense after all.

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