Is now the time for you to buy? Well, it depends on your individual situation. If you are thinking about jumping in and buying a home here are a few reasons why we feel you are making a great decision to start now.
From about 2002-2006 most parts of the country watched as home prices surged to unprecedented levels due to a number of factors. This “bubble” could not be supported for long and eventually burst. The result was deeply declining home prices and a general hesitance from many would be buyers waiting to see where the market would go. The last 5 years has seen the market stabilize, and appreciation return with consumer confidence and low unemployment. Please know that to time the market exactly is as difficult as timing the stock market and it is well-accepted that no one can do it spot-on every time.
Great news! Homeownership hasn’t been more affordable in over 20 years according to the National Association of Realtor’s home affordability index that is based upon average income, interest rates, home prices and a number of other factors. This is great news for a prospective buyer who was not able to purchase a home for $400,000 in 2006 but can now afford that same home for $300,000 in 2009. While the recent declines have hurt many homeowners that bought near the peak it has also presented a fantastic opportunity for potential buyers that couldn’t afford to purchase a home just a few years ago!
The age old investing mantra says to buy low and sell high. While the exact bottom can never be calculated until after the fact (it was February 2009 for our areas of Alexandria, Springfield and Lorton), we are certainly recovered, but the affordability level is still attractive. Even though real estate is cyclical (peaks and troughs), the one guarantee is that over an extended period of time it will always increase in value…4% historically. Affordability plus low interest rates plus high rental prices is an incentive to buy.
When we say leverage we are speaking from an investment standpoint. Generally speaking, when you buy another form of investment such as a stock or bond you pay $1 and receive a $1 investment. In real estate, however, that same $1 may buy you a $5, $10 or even larger asset! A mortgage provides leverage that no other investment vehicle can offer.
While the days of 100% loans are gone (except for military! Hoooah!), there are many great government funded programs available that make the dream of homeownership available even without the conventional 20% downpayment. FHA loans allow prospective buyers to purchase a home with as little as 3.5% down! There are even government rehab loans available to take advantage of foreclosures or short sales that may need some work without having to pay out of pocket. It is always best to contact a local lending expert to go over all of your options as rates, fees and loans change daily. We are always glad to refer you to one of our preferred lenders- just contact us!
Right now interest rates are just a little up from historical lows. What this means to you as a buyer is that you can afford a higher priced home for the same, or lower, monthly payment. Interest rates will not be able to stay so low forever and will inevitably begin to rise again so take advantage now and lock in a great low fixed rate. Just to show a little perspective, when Cindy began her real estate career interest rates were near 20%! When Tom bought his first house, he was thrilled to get an interest rate of 10.5%.
The F and S Words
That’s right; foreclosures and short sales. A foreclosure is a home that has been taken back by the bank from the previous owner. A short sale is when an owner owes more than the home is worth and is trying to get the bank to accept less than their loan payoff. As opposed to regular sales where you deal directly with a homeowner and buy at market value, these types of sales are negotiated directly with the bank and can in many cases allow a buyer to walk into a property with built-in equity. Banks are in the business of lending money, not owning real estate, so in many cases they are willing to negotiate a deal to avoid taking larger losses. There are still some of these properties on the market. While less available than a few years ago, they will always represent a segment of the market.
Hopefully, if you are thinking of buying right now, we put some of your concerns to rest. There’s no doubt that it’s a big decision but if you don’t take action now this opportunity might pass you by. Does the whole process in itself seem just too overwhelming? That’s why you need an experienced local Realtor to guide you through the various steps. This is what we do everyday and there is no greater satisfaction then handing a first-time homebuyer the keys to their new home. Ready to learn about what to do next? Head on over to our next section: Homebuying Process