Why in today’s economy is it the perfect time to buy a house? Shouldn’t I wait till the economy picks up to start looking for a house?
The truth is, in your lifetime, there will never be a better time to buy a house. Here are the top reasons why now is the time to buy a house more than ever.
Houses are Below Market Prices
There is a major cause and effect that created the kind of market we have today where buyers are able to buy houses at below market prices. One main cause has to do with the strict lending guidelines that have been put into place for the last few years which has decreased the number of qualified buyers. According to the Federal Reserves – Senior Loan Officer Opinion Survey on Bank Lending Practices, the banks have been tightening their credit standards since early 2008.
With a lack of qualified buyers, the amount of unsellable houses for sale greatly increases, creating a surplus of homes. Sellers are forced to start reducing their home prices to become more attractive to home buyers. The surplus of houses creates what economists claim is a buyer’s market. A buyer’s market is when there are more houses on the market than there are qualified buyers to buy them.
Buying a home at below market prices is not only the benefit of buying a home in 2011, it is the norm. The national median average sale price of existing homes, according to the National Association of REALTORS, has dropped close to 14% from 2008 to 2010. Stats also show there are signs of stabilization though, which may mean the market will only get stronger in the next few years. Buying a house in 2011 may be one of the last few chances of buying at below market prices.
Interest Rates are at a Historic Low
If you look back in history you may be able to understand why taking advantage of the interest rates today is so important. According to Wikipedia’s Federal Funds Rate 1954 through 2009, starting in the early 80’s interest rates were at their all time peak above 18% on a 30 year mortgage. Proceeding ahead another 10 years, the same 30 year mortgage rate dropped to 10% in the early 90s. Over the coarse of the last 20 years, the interest rates have held flat while slowly dropping to become what they are today hoovering between 4% and 5%.
In order for you the buyer to take advantage of these historic lows, you will need decent credit and a down payment, unlike in the mid 2000’s where the sub prime and predatory lending allowed almost anyone to qualify for a loan. According to the Federal Reserves – Senior Loan Officer Opinion Survey on Bank Lending Practices, banks have remained unchanged in tightening their standards in January and April 2011 reports. As banks loosen their standards and the economy stabilizes, interest rates will begin to rise making it harder to get the low rates that are with us today.
Great Long Term Investment
Buying a home means different things to different people. Some people buy a home for more space. Others buy a home for convenience to work or family. No matter what the reason, the main reason home buyers think financially about buying a home is for a long term investment.
Owning a home, unlike what some might think, has never been a short term investment where you are able make tons of money. According to the index of single-family home prices provided by the National Association of Realtors, home prices have increased steadily from 1970 to around 2011, with regards to the huge spike and decline in values from 2000 to 2008.
Buying a house in 2011 may prove to be the best time to build equity for your future. Equity in real estate is defined as the difference between what a property is worth and what the owner owes against that property. A huge chunk of wealth for most people lies in the home they own at some point in their life. An advantage to buying a home in 2011 is the ability to build equity faster through years of ownership by taking advantage of low interest rates, an over supply of houses, and the ability to get below market prices on properties. Other possible ways to build equity are by making improvements or buying in an area with large demand.
The Bottom Line
If you are waiting for the housing prices and interest rates to drop more, you may lose out on the best time in recent history to buy a house. Most analysts don’t expect any significant declines in the real estate market to effect these factors and claim waiting will cause losing out on a great opportunity. Today it is a buyer’s market, but like everything else in life, the buyer’s market won’t last.