Why in today’s economy is the perfect time to buy a home? Shouldn’t you wait until the economy picks up to start looking for a house?
The truth is, there will never be a better time in your life to buy a home. These are the main reasons why now is the time to buy a house more than ever.
Homes are below market prices
There is an important cause and effect that created the type of market we have today, where buyers can buy houses at below market prices. A primary cause has to do with the strict lending guidelines that have been put in place for the past few years, which has decreased the number of qualified buyers. According to the Federal Reserve Bank Lending Practices Opinion Survey, banks have been tightening their credit standards since early 2008.
With a lack of qualified buyers, the number of unsalable homes for sale increases dramatically, creating a surplus of homes. Sellers are being forced to start lowering the prices of their homes in order to become more attractive to home buyers. The surplus of houses creates what economists say is a buyer’s market. A buyer’s market is when there are more homes on the market than there are qualified buyers to buy them.
Buying a home at below market prices isn’t just the benefit of buying a home in 2011, it’s the norm. The national median sales price of existing homes, according to the National Association of REALTORS, has fallen about 14% between 2008 and 2010. However, the statistics also show that there are signs of stabilization, which may mean that the market is only will strengthen in the coming years. Buying a home in 2011 may be one of the last opportunities to buy at below market prices.
Interest rates are at an all-time low
If you look back in history, you may be able to understand why taking advantage of today’s interest rates is so important. According to Wikipedia’s Federal Funds Rate from 1954 to 2009, as of the early 1980s, interest rates were at an all-time high above 18% on a 30-year mortgage. Fast forward another 10 years, the same 30-year mortgage rate fell to 10% in the early 1990s. Over the past 20 years, interest rates have held steady as they slowly fell to become what they are today, ranging from 4 % and 5%.
In order for you, the buyer, to take advantage of these all-time lows, you’ll need decent credit and a down payment, unlike in the mid-2000s where subprime and predatory lending allowed almost anyone to qualify for a loan. According to the Federal Reserve’s Opinion Survey on Bank Lending Practices, banks have remained unchanged on tightening their standards in the January and April 2011 reports. As banks ease their standards and the economy stabilizes, interest rates will begin to rise, making it harder to get the low rates we have today.
Great long term investment
Buying a home means different things to different people. Some people buy a house for more space. Others buy a home for convenience for work or family. No matter what the reason, the number one reason homebuyers financially think 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 can earn tons of money. According to the Single Family Home Price Index provided by the National Association of Realtors, home prices have risen steadily from 1970 to around 2011, relative to the large rise and fall in values from 2000 to 2008.
Buying a home in 2011 may turn out to be the best time to build capital for your future. Equity in real estate is defined as the difference between the value of a property and what the owner owes against that property. A large part of wealth for most people resides in the home they own at some point in their lives. One advantage of buying a home in 2011 is the ability to build equity faster through the years of ownership by taking advantage of low interest rates, the oversupply of homes, and the ability to obtain properties below market prices. Other possible ways to build equity are by making improvements or buying in an area with high demand.
The bottom line
If you’re waiting for home prices and interest rates to fall further, you may miss the best time in recent history to buy a home. Most analysts do not expect significant declines in the real estate market to affect these factors and say that waiting will cause a great opportunity to be missed. It’s a buyer’s market today, but like everything in life, the buyer’s market won’t last.
