Why You Absolutely Need to Buy A Home Now
By
History Shows That Now is The Best Time To Buy
In 1971 Housing Affordability was at its highest prior to this year. Meaning that this is the best time possible to buy.
Let’s Talk Affordability
The chart below plots two things: National Association of Realtors Affordability Index (green line) and 30 Year Fixed Rates (blue line). As you can see on the far right side you have the highest Housing Affordability and the lowest Rates. So, you have the lowest prices, lowest rates, and highest affordability.
What About the ’80′s?
In the period of 1979 to 1984 you have some of the highest interest rates on record. Yet, still a lot of people purchased homes during that period. The people that bought homes during that time did well 15 – 30 years later. My Mother purchased her first home during that time period even though rates where in the 12′s to 18′s. In 1982 Housing affordability was at its lowest ever. Inflation kicked in 1975, and rates continued an upward trend through 1979. So, the Gap between housing affordability and Interest Rates was very wide, the widest of record.
The Best of All Scenario’s
Today we have a very wide gap as well, but in a good way. Presently because interest rates are so low, home prices are low, and housing affordability is up, the overall risk is greatly reduced. If the risk was so great in 1982 and homebuyers did okay, how can someone look at the chart today and say that it is riskier than in 1982.
What About the Negative News?
That’s the best part if you are a homebuyer. Trulia recently release a report Showing Sellers Continuing to Slash Home Prices. This means you are getting an even better price on an already reduced house. The Department of Housing and Urban Development (HUD) just released there July report card, “The Obama Administration’s Efforts To Stabilize the Housing Market and Help American Homeowners.” This report card shows continued affordability in the U.S. Market.
Historic low rates continue to promote affordability: Families continue to benefit from the lowest rates in history on 30-year fixed mortgages. Since April of 2009, record low rates have helped more than 7.2 million homeowners to refinance, resulting in more stable home prices and $12.9 billion in total borrower savings.
Simple supply and Demand suggest that since there is not as great of demand now, compared to during the tax credit, housing prices will decrease thus further increasing the affordability (Read Better Deal!) There are still large amount of houses on the market and many more still in foreclosure. Both Federal Housing Finance Agency and Standard and Poor’s believe that House Prices are showing signs of stabilizing.
What do you think housing prices and interest rates will do in the next 12 months?
If you are looking to purchase or refinance please give me a call or email Jeremiah so we can get the process started. I’d be happy to get you started.
I really appreciate you coming back to look around. If you know of anyone else you think might enjoy my blog, please don't keep me a secret.
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HI Jeremiah, not sure if the Aussie market is following the US one or not, sure hope not. I really believe in investing in property and am building myself a portfolio. In Australia housing prices on average increase 10% a year over a ten year period. I am hoping to use the capital growth as my retirement plan. Great job here educating people on property.
Belinda
Jeremiah, Great post! I am going to be moving in about a year. I know it's a great time to buy, however it's probably not a great to to sell. I guess it all sort of balances out. I personally think that if you want to buy a home, just do it! History shows, Buying a home is a good investment! We don't always have the option of waiting for that so called “good time to buy”. Just my 2 cents! Thanks for the very useful information! Joseph McDevitt
Belinda,
Thank you for the comment. I certainly hope the Aussie market is not following the US market. 10% per year is a pretty fast clip though, but it all depends upon income growth (if the average salary is keeping pace) then everything should be fine.
In the US it used to be that people where buying houses that where 2.5 – 3 times there annual salary. At the height of the market, when housing prices got out of hand it was sometimes as high as 6 -8 times annual salary (someone with a $100,000 household income buying an $800,000) house.
For an investment I don't know of a better place to put your money than into rental homes. As long as the home cash flow, the home appreciate is really just gravy. One thing you might want to consider is taking cash out of the home that have gone up in value 50% or more (based on your appreciation that would be homes you've held about 3-4 years) and reinvesting in additional homes or putting in a safe side account.
Joseph,
As long as you are moving up you end up okay. Because while you lose some money when selling, the person you are buying from lost money as well. So as long as it is a larger home that you purchase the amount of money you lose when selling is offset buy the lose the seller takes on the home your purchase.
My father brought me a home that I rent from from him on the west side of Indy so the issues presented in this blog I live with daily. In two years or more when the deed is handed over what will the value of the property really be?
sincerely
Monty Ferbert
http://gardenblog.bluestreakhits.com
Monty,
Thank you for stopping in. It really is hard to predict what a value will be like two years from now. However, I would say it will be better than it is presently. For one, the number of people employed should start increasing by then so unemployment will decrease, thus allowing for more people to qualify to purchase and decrease the available inventory.
I really think that Indiana just got caught in the bad stuff that was happening elsewhere. In Indiana we never really saw even double digit property appreciation, at most 4%. So, income for the most part kept pace with the value of homes. What did hurt us along with everyone in the US is when business credit dried up it caused increased job loss and manufacturing sector to virtually shut down.
The main drivers behind housing will always be true though:
* There isn't anymore land being built (except in Dubai)
and
* People will always need a place to live.
Neither me nor my husband are in the mindset that your personal residence is ever an asset. We probably won't buy another house unless we just have the cash to slap down on the table. I don't have much to say for the banking and mortgage industry right now nor for all of the programs designed to keep people in homes that they could not afford to begin with. That is just my opinion. Would love to hear yours on it. I get the impression that you are a fair and honest businessman though. They need to stop using the selling prices of current homes as the medians for fair market value. The real value of a home does not compare to the other one that just went into foreclosure up the street.
Nicole,
You have a lot of valid points. Being able to pay cash would be best. Unfortunately, most people are not able to come up with enough cash to buy a home outright. So, they leverage a little of their money with the banks. While I don't foresee homes appreciating anywhere near the level they did previously, I do think they will stop dropping in value, and maybe even a slight up-tick. Thus, having a loan doesn't multiply your net worth like before, but it does create a forced savings account, and overall cost is comparable or less than renting; adding at a slow pace to one's net worth.
While a lot of the news programs are touting success for the various programs designed to help keep people in homes they couldn't afford I don't believe many are actually working. Only time will tell. I feel the true nature of the programs were designed more to protect the banks than to help the consumer keep the house. They protect the banks by allowing the banks to keep from having to take a realized loss on their balance sheet by foreclosing on the home. Banks and the servicer will only do what is in “there” best interest, that which is quickest, easiest and has the best return to them. I definitely, do not want to see people homeless. It has been my opinion that the true market correction will not occur until the government intervention has ceased and true values in housing and banking is obtained.
I believe all the various programs have created a bunch of moral hazard.
Your personal residence is where you store your belongings and your heart, and should not be a place to store equity (asset). As a home appreciates the available equity should be withdrawn and placed in a safe side account. Thus there is more risk on the Bank than the homeowner. Less equity means that the Bank will more than likely lose money so is a lot less likely to foreclose on a home.
The values of foreclosed homes shouldn't be used as comparable sales for value estimate because they are not a true arms length transaction. A lot of times foreclosures need a lot of work, items are missing, and the home has went without upkeep and care for a long time. It takes 6 – 9 months on the quickest foreclosure, a lot of times now banks will not even start foreclosure until the homeowner is over 1 year delinquent. But also the current market is not the market of tomorrow.
Hi Jeremiah,
Both my husband and I were Estate Agents (Realtors) here in the UK some time ago. So, it was with interest that I started reading your site. I don't claim to know much about the US property market but I can give you a little insight into the one over here.
British house prices edged up just 0.1pc in June 2010, prompting speculation by some that another property slump/stall is just around the corner. The average sold price for a UK home is 170,111 GBP (which converts to roughly $263,076 USD) although here in our county, Rutland, the average sold price is 216,778 GBP ($335,247). Which would be ok, if we really did earn lots more by way of salaries! The banking crisis has caused tremendous damage over here as well as in the US.
It makes me think how lucky my parents generation have been to have jobs for life, final salary pension schemes and the benefit of the housing boom that allowed them to make an absolute killing.
We've always wanted to come to live in the US but would it be wise? Out of the frying pan into the fire perhaps? What do you think?
Best wishes
Joanna
A lot of good answers. Thanks for taking the time to answer. A one year delinquency is a long time. There are a lot of people who are just squating in their homes. These are strange times we are living in, but I think they will only get stranger.
Joanna,
Thanks for the comment.
I think the US Housing market while it may not have reached the bottom the sliding has definitely eased. Before any real recovery can begin though we need jobs recovery. There is still fear in the eye of the consumer and business owner. Consumers are saving (which is a good thing) instead of spending, so there isn't a large incentive for business owners to produce more, thus no need to add additional jobs. It all has to begin with everyone's confidence in the future.
The housing market presently in the US has presented some great opportunities. I've seen houses sold within 15 minutes of Walt Disney World for $45,000 (4 BD, 2BA, with 2 Car Garage) that maybe only need $10-$15K of work. These houses are renting for $1400 per week. The problem is that at that price it is really only available to cash buyers. There are definitely opportunities to purchase great houses and very steep discounts.
The jobs for life, pensions, and benefits would be wonderful. I know there are a lot of people that counted on pensions and benefits in the US only to see the company file for Bankruptcy.
We have the great opportunity to really make something for ourselves. History has shown that there are more millionaires made during economic downturns that during boom times. Everyone just has to look for the opportunity and the value and go for it.
The US is great come on over. Heck, with the exchange ratio you'll do great.
Nicole, I agree. Even after foreclosure a lot of times lenders are paying the previous owners to leave. It definitely never seemed like it could get to this level. But eventually the rain will stop and the sun will come out.
I bought a my first house about two weeks ago now! This is the time to get your butt in the market.
Great info Jeremiah! We will never ever live to see an opportunity like this again. I am paying less than 1/3 of what my rent was for the last 7 years to own my home.
New roof, appliances, electric, air conditioner, and put about 2k into some cosmetic stuff around the house and in a decent area of Tampa came out to only 50k.
This is the time! Call Jeremiah now so you can take advantage of the knowledge of an expert.
Have a great day!
Joe
Joe,
You are so right. It is unbelievable. I know there are still a lot of people out there that don't feel it's even possible to buy their own home.
Thanks so much for the kind words, hopefully, I still be able to fit through the door with my Head.
Hi Jeremiah,
I bought my home in 2004 and it's far above the “norm” for the rural area I live in but I still think I did okay with it since our intention was to remodel and build equity by doing the work ourselves. We're very close to having everything completed. My payments are still affordable for me, I bought on a 30 year fixed at 6.2%. Here's my question: would it be wiser to refi this house at a lower rate with a 15 year fixed… or would it be better to buy an investment property considering that housing prices and interest rates are so low right now, as you pointed out? I've been thinking about this for a while and just am not sure which would be the better direction to take.
Deb,
6.2 is a great rate long term; however, rates are so ridiculous low right now that you need to refinance to take advantage. Whether to go with a new 30 year or 15 depends upon your long term goals. How long do you see yourself living in your present house? Do you see your income increasing in the near future, remaining the same? Comparing your present rate to today's rate you could more than likely refinance with all closing costs being paid by the rate, you might need to bring a little, and get into a 15 year with a payment at or below your present payment.
You might also consider taking out a little bit of money if there is enough equity and using that as a down payment on an investment property. There are a lot of areas that have just unbelievable cash flow right now.
While I can only do loans in Indiana, I know of a great Loan Officer in Washington.
Thanks for your quick reply, Jeremiah. Much appreciated. I plan to stay in this house a long time but I'd like to semi-retire early!
That's why I'd like to pay it off as soon as possible. I also thought about just paying more every month on my mortgage instead of going through the process of a refi. If I paid 25% more every month I figure that will go a long way. I was also thinking about trying to buy a house for my daughter (she could rent it from me and I'd will it to her in the event of… well, you know.) Lots to think about! You can email me about the loan officer you recommend here in Washington. I'd appreciate the referral just in case. deb at mywebgal.com
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