Aah, the age old question, “Is now a good time to buy a house?”
It’s never been a simple question to answer, though interested parties would have you believe it’s always the right time to buy.
Their logic being that real estate is always a good investment at any time because prices are sure to rise over the long term, at least via inflation. But that said, there are certainly better times to buy than others, though it’s not necessarily easy nailing down that right time.
Housing Affordability is Super High
At the moment (this article was written in late April 2009), there are a number of factors working in favor of prospective home buyers. They include an $8,000 homebuyer tax credit that doesn’t need to be paid back, record low mortgage rates, and discounted home prices.
So affordability is actually at its best level in nearly 40 years, but it’s a little skewed given the government’s intervention in pushing interest rates artificially lower.
Home builders are probably benefiting more than prospective buyers because they don’t need to lower their prices as much since the lower rates equate to more affordable monthly mortgage payments.
Meanwhile, there is much uncertainty about the direction of home prices, despite already having fallen by the double-digits. In fact, most reports see home prices continuing to drop until some semblance of stabilization occurs in late 2010, though as time goes on, that supposed recovery seems to keep getting further and further away.
But Qualifying for a Mortgage is Difficult
And while interest rates are super low, qualifying for a mortgage is more difficult than it has been in the past boom years. Nowadays, you need some kind of down payment, a solid credit score, and verifiable income. So even if it is indeed the right time to buy, you may not qualify under the new, more stringent guidelines.
Determining whether you should buy a home or not is certainly complicated, and the answer will vary based on your location and unique situation. In certain areas of the country, home prices may be stabilizing, while other areas continue to fall.
Where home prices didn’t run up much over the past years, in may make sense to buy given less downside price risk, those low interest rates, and that homebuyer credit. In places where home prices skyrocketed, it may be wise to hold off until prices come down even more, with an influx of foreclosures still expected.
Mortgage rates are predicted to stay low for all of 2009, and may even drop more this year, so there’s no big rush to pick up a property if you don’t need to. Of course, if you plan to settle down somewhere for the long haul and you’ve found an ideal property, there’s no reason you should necessarily hold back.
No Quick Turnaround
Conversely, if you want to buy a property to make a quick flip, you may want to think twice, as home prices aren’t expected to rise for quite some time. And so-called distressed sales aren’t as discounted as you may think.
Other things to consider are rent vs. buy pros and cons, which should shape your decision as well. And remember to read media reports with a huge grain of salt, as many are driven by special interest groups like the real estate agents and the home builders.
The economy is in really bad shape, and will be for quite a while, so you’ve got plenty of time to buy that dream home. Don’t worry about missing the boat…it’s going to be docked for the foreseeable future.
Read more: Should I buy a house or a condo?