Never Before or Again Such a “Perfect Storm” To Buy a Home
By Bill Primavera
The Home Guru
Published July 5, 2011 in The Examiner Newspapers
If ever there were a “perfect storm” in which to buy a home, it is now. And this is not just the opinion of realtors who would want to work with you in finding your dream digs. For the first time since the start of Great Recession, financial media outlets are advising their followers that we’re practically awash in opportunity to make the deal of the century in buying a home, and it may never come again, certainly not in our lifetime.
This is a far cry from what we’ve been reading in the press and electronic media since we first heard the term subprime mortgage, which many of us had to look up to understand. Reporting unmercifully on the plight of housing’s dilemma since that time, the media has pummeled sellers and prospective homebuyers with bad news about double digit declines in home values, short sales and foreclosures. And these headlines convinced many to wait on the sidelines until they were assured that the bottom was here. We were all spooked out, both psychologically and with hard statistics.
Then suddenly, and perhaps coincidentally with the announcement that home values had actually increased in May for the first time since tax credits buoyed the market in 2009 and 2010, major news outlets like The Wall Street Journal, Moody’s and CBS Money Watch are saying that the market may indeed have hit bottom or very close to it. But, even if it hasn’t, they agree that it’s a very good bet to purchase now, rather than wait, while conditions are unprecedented.
The first condition may not at first glance be obvious, but each financial news source knows that PRICE is not as important as COST. The cost of a home can go up even if prices continue to fall. Unless you are an all-cash buyer, you must take into consideration the expense of mortgaging when calculating the full cost of a home.
Mortgage rates are at historic lows right now. A 4.6 percent interest rate on a 30-year fixed rate mortgage is bargain-basement cheap but, in just a year, the forecast is for a 5.7 percent interest rate. And, here’s the math on the difference that full one percent or more makes:
If you take out a $300,000 today at 4.6 percent, your monthly bill will be $1,537. But if you wait another year on the expectation that prices will go lower, that one percent increase would dictate that homes prices would have to fall nearly 12 percent to come in at the same monthly mortgage cost if you were to buy next year. And, that is more than double the price decline most forecasters are expecting.
Another factor to consider is that the government has proposed a tightening of lending standards with the Quality Residential Mortgage (QRM). If this goes through, the qualification process of loans will become more difficult, and the cost of a loan will increase as a consequence.
And, adding to these conditions is the fact that there is still less competition, with fewer serious buyers looking to make a deal. That means it is less likely that there will be bidding wars for those who decide to purchase now.
Some may think that it is a better choice to rent until they are convinced that prices are at bottom, and while that may have been the case just a few months ago, now experts say that it would be a poor choice. They point out that the rental market has boomed as the result of foreclosures, capturing higher prices, and the selection is now more limited. Therefore, in this market certainly, buying offers stronger relative value compared to renting.
Recently a reader and I had a conversation on this very subject. “Yeah, things are great for buyers, but pity the poor homeowners who are giving their homes away, compared to a few years ago,” she said.
I responded that I didn’t see it quite that way. As more buyers break through their anxiety to buy before they lose the opportunities available to them right now, more homes will sell, the inventory will decrease, and prices will rise again. And what is good for the goose, that is, the buyer, is also good for the gander, or the seller. Remember, the sellers will move on to another property, either in a different area or downsize in the same location, and they will make up on the buy side what they lost on the sell side.
Bottom line: For those who are able, never before or ever again will there be such a “perfect storm” to buy. Ready, willing and able to make that leap?
Bill Primavera is a licensed Realtor® (www.PrimaveraHomes.com), affiliated with Coldwell Banker, and a marketing practitioner (www.PrimaveraPR.com). For questions or comments about the housing market, or selling or buying a home, he can be reached directly at 914-522-2076.