Joshua Ritchie on January 5, 2011
We’ve heard a lot from politicians and journalists for the last two years about how bad things are. The economy is in the tank…. The housing market is flat. But is this really true for everyone? Of course not. Economics is not a one-sided subject where things are either great or terrible for everyone. There are two sides to every transaction. So, while today is probably not the best time to be selling a home, it might be the perfect time to buy a house if you can afford it.
Here’s why:
Housing Prices Are Low
First, and most obviously, this is a buyer’s market. Home prices are lower than they’ve been in years. On November 12, USA Today reported that median home prices had fallen in “almost as many areas as they rose” according to National Association of Realtors surveys. The national median home price of $177,900 was down 0.2% from its position during the third quarter of 2009.
While this is bad news for home sellers, it is actually great news for home buyers, especially first-time buyers. A young couple with the money for a down payment can take advantage of today’s low home prices – possibly buying more house than they could have afforded just two or three years ago.
Foreclosures
Another positive (as far as home buyers are concerned) is the still-high nationwide foreclosure rate. According to Amy Hoak of MarketWatch, foreclosures could peak in 2011. In an interview with Rick Sharga (a Senior VP for RealtyTrac), Hoak found that not only were there “about 1.2 million” bank repossessions in 2010, but also that there should be even more next year. “Continued higher unemployment” as well as “upcoming interest rate resets” that raise monthly payments for some homeowners are both expected to keep foreclosures coming.
To the aspiring homeowner, this is not a tragedy, but an opportunity. Banks are not in the real estate business and they do not want to own property. By acting quickly, you can purchase foreclosed properties (which usually have nothing wrong with them) from banks for substantially less than market value.
Low Mortgage Rates
Low mortgage interest rates also make buying a home attractive. While rates are no longer historically low (December 17th’s Wall Street Journal reported a rate of 5.09% for 30 year, fixed loans) they are still quite manageable for buyers with strong finances. In fact, rates are still lower today than they were twelve months ago.
Goldman Sachs economist Ed McKelvey added that “since the recent rate increases have essentially just undone the declines from earlier months, it is hard to see why sales should drop significantly further from current levels.” Furthermore, by locking in today’s rates, you automatically protect yourself from future increases (which are likely if the economy continues to improve).
Benefit From Market-Wide Improvement
There’s an old saying that when you’ve hit rock-bottom, the only way to go is up. This applies greatly to home buyers in today’s market. By buying when prices are extremely low, you are positioning yourself to reap the rewards later on, when the market inevitably improves. Which it will, because the housing market (like the economy itself) is cyclical.
No matter how depressing things may seem, they always turn around. Think about the Great Depression, the 1980′s stock market crash or the tech bust in the late 1990′s. All of these situations seemed hopeless at the time, yet every single one of them ended. In each situation, the winners were those who bought assets when they were cheap and hung on until they rose in value.
Motivated Sellers
When the economy is soaring, buying a home can be a hassle. After all, it’s a seller’s market. Why should they be in any rush to accept your offer and close the deal now when a much better one could be right around the corner? Instead, you’ll be forced to either move on to another property or wait while the seller evaluates other offers.
In a buyer’s market (like today’s) the situation is the opposite. Now, sellers are eager to accept competitive offers and move on with their lives. This means that you can get into your new house in less time and with less hassle than before.
