Low Down Payment Mortgages

Low Equity Mortgages

When Is The Right Time To Buy into Real Estate?

First Time Buyers-to-Be Ask: Buy now or buy later?

When we read the papers or check the financial news, pundits agree that the housing crisis has not yet bottomed, and some further price declines are to be expected. This issue raises the question of whether it is prudent to buy now, rather than wait until prices are on their way back up. We think that it is better to be a buyer in this scenario than a seller, so there may never be as good an opportunity to this to get the home you want at a price you can afford. Here’s why:

Guessing the bottom

Wall Street traders who have up-to-the-minute data about the market prices of securities and commodities rarely try to guess the bottom of a cycle. They buy when they believe that the price is below the fundamental value. In a depressed market, with the help of a savvy Realtor, a prepared buyer can secure an optimal home for a delightfully low price.

These windows of opportunity are wide open now, but buying opportunities, like speculative bubbles, never last forever and disappear practically overnight. Recently, The National Association of Realtors has been reporting that existing homes sales (as opposed to new construction) have stopped declining and are inching up.

Homes are not commodities

It is impossible to value one kilogram ingot of copper more than another. Copper is copper, and it is worth only what the market will pay for it. Since you can buy any old ingot of copper with a keystroke, it makes sense to delay buying commodities that you don’t NEED until you are sure that the market has bottomed.

Not so with homes. Monthly payments must be allocated somewhere -- to renting or buying. A home in a good school district and convenient to work and that ‘feels’ like home is worth a lot more to you than a home that does not have all those attributes. Homes have value that is unique to the owner. The good news for a homebuyer is that with prices down and inventories high, this is a terrific time to go out and get a great deal on the right home for you.

Long term investment

Market conditions matter only to sellers and speculators. First time homebuyers are neither. If you can find a home that you love, buy it. What it is worth on the resale market is irrelevant to you until you decide to sell. Many people live in their first home their entire lives. Many others keep the property as an investment when they move up or away. The mindset of buying and flipping for a profit in a few months works fine in a bubble market, but in a post bubble market, you need to return to the fundamentals. You are buying a home. Count on it appreciating 5% per year if you hold it long enough, but that should be gravy, not the main reason to buy.

Location, Location, Location.

One of the luxuries of a buyers market is that there is plenty of inventory for your Realtor to show you, and plenty of motivated sellers anxious to consider your offer sheet. Almost certainly there are deals to be had in every neighborhood you want to shop.

Getting the right location during this downturn could be a major money-saving step for budget areas beyond houseold housing outlay. In many metro areas, first-time buyers must settle for properties located farther away from work than they'd like because that's where they can afford to buy. With gas prices predicted to go nowhere but up, there are now opportunities to buy in more desirable neighborhoods that first-time homeowners haven't seen in more than a decade.

There are lots of different factors to consider when targeting location that will influence your quality of life while living there as well as the likely resale value of the property. Knowledge of the local area and expertise to ensure the different location considerations are weighed some of the most important reasons to engage a Realtor in your search.

Rent versus own

Itemized deductions are the best way to lower your tax bill. If you rent, the odds of having enough deductions to kick you over the standard deduction threshold are slim.

Financing costs

Many mistakenly think that the Federal Reserve influences mortgage rates directly. The Fed can only impact short term rates, which do influence the indexes that drive adjustable-rate mortgages (ARMs).

The rates for fixed-rate mortgages rates are fundamentally driven by the 10-year Treasury rate. The 10 year Treasury rate is strongly influenced by the market’s opinion about inflation. If investors see inflationary times ahead, the market will price bonds so that the interest paid covers the loss of purchasing power of the dollars used to buy the bonds while those bonds are held. If investors are comfortable that inflation is under control, they’ll accept a pretty paltry yield on their 10 year treasury bonds.

There are other factors that influence the market pricing of Treasuries, but fundamentally, inflationary expectations are the 600-pound gorilla when forecasting mortgage rates.

Increasing Mortgage Rates Offset Decreasing Property Values

If we could reliably predict the future we wouldn’t be processing mortgages, but the argument for mortgages rates moving up for fixed-rate loans is pretty compelling.

Higher fuel prices make everything more expensive. Recovering from the current credit crisis requires lots of liquidity, which is another term for ‘printing money’, which is a major cause of inflation. Our Federal deficit is funded by borrowing, and the lenders are increasingly East Asians and Petro-economies, and this depresses the dollar, which makes everything more expensive, which drives more inflation.

The risk that a homebuyer takes by waiting for the average price of homes in his area he wants to live to fall a few more percentage points is that probably the cost of financing that home is rising, and his cost of ownership, roughly speaking, will stay the same. If rates rise half a point, the price of your home has to also drop 5% for your monthly payment to stay the same. In our opinion, more is being done to end the housing crisis than to rein in inflationary factors, so the likelihood of higher rates is greater than the likelihood of cheaper homes in the future.

Conclusion

Buying a first home is like having a first baby. The timing is never optimal, finances always have to be juggled, it’s a big responsibility, and, yes, your life changes. However, both events bring pride, both are long-term commitments.

Homes have always been considered long term investments.

A speculative bubble has colored the past five years, and homes were seen as short-term speculative investments. For years the standard advice about buying a home was: be sure you can hold it for at least five years. It will appreciate nicely in the long run, but short run gains are by no means assured.

Another way to say it: you can't call the short-term market turns -- so don't try -- but buying a house as part of a long-term financial plan still makes sense.