Posted on 09/18/2009 4:18:26 PM PDT by SeekAndFind
If you've been waiting for home prices or interest rates to fall further before you buy a home, it's time to rethink your strategy. If you act soon, you'll be able to take advantage of historically low prices and interest rates that won't be around forever. And if you're a first-time buyer and you act very soon, you can still take advantage of an $8,000 tax credit. Here are five reasons to take the plunge now.
1. You may get a fat tax credit.
The first-time home buyer's tax credit is worth 10% of the home's purchase price, up to a maximum of $8,000. But to lock in the credit, you must close on your purchase by November 30. Given that it usually takes a minimum of 30 to 45 days to get to closing after you and the seller have a ratified purchase contract, your real deadline is closer to October 1.
You don't qualify for the credit if you owned a primary residence in the past three years. And the credit begins to phase out when adjusted gross income is more than $75,000 for single filers, or $150,000 for married couples filing jointly (those with incomes of more than $95,000 and $170,000, respectively, will not receive a credit).
Although several bills before Congress propose to extend or even expand the credit, don't count on it. Legislators are preoccupied with health-care reform and concerned about increasing the federal deficit.
The desire to lock in the credit pushed Ari Weitz, 27, of Atlanta, to buy his first home in August. Weitz began shopping in Inman Park, a vibrant neighborhood in Atlanta's Old Fourth Ward. In April, Weitz found a 1,700-square-foot townhome with three bedrooms and three and a half baths that he really liked. It was listed for $275,000.
His first two offers of $240,000 and $250,000 with $5,000 in seller-paid closing costs didn't fly, but Weitz monitored the status of the property. When he learned in July that the owner was moving out of state and had to sell, he offered $254,000. That offer was accepted, and he got the $5,000 in closing costs, too.
2. Prices are scraping bottom.
It's hard to know whether prices are as low as they'll go, but the housing market is showing signs of life. Between the first and second quarter of 2009, the S&P/Case-Shiller Home Price Indices, a measure of U.S. home prices, rose by 3%. That's the first quarter-over-quarter increase in three years.
Robert Shiller, an economics professor at Yale and a developer of the S&P/Case-Shiller Home Price Indices, says it's too soon to call the uptick a turning point. He says that it may indicate only that the decline in home prices-some 30% since the housing market's peak in mid 2006-is slowing.
The National Association of Realtors (NAR) says homes haven't been this affordable since the 1970s. Based on average income and median home price, a little more than two-thirds of California households could afford to buy an entry-level home during the second quarter of this year, compared with just less than half a year ago.
3. Foreclosures are at record highs.
Distressed sales (foreclosures and short sales) accounted for more than a third of all home-sale transactions in the second quarter of 2009-and represent an opportunity to buy a home at a deep discount.
Such homes typically sell for a 15% to 20% discount from market value. California, Arizona, Florida and Nevada continue to experience the sharpest price declines. Foreclosures will continue to rise with the jobless rate and the last wave of subprime-mortgage delinquencies, despite relief efforts by lenders and the Obama administration.
There are caveats. When REOs (real estate owned by the bank after foreclosure) hit the market, the banks receive multiple offers, often above full price. The banks prefer investors who will pay with cash over "regular" buyers who must seek financing, and they prefer conventional financing over Federal Housing Administration or Department of Veterans Affairs loans.
Buyers think foreclosures are a great deal until they see them in person and realize that often, they need a lot of work. That puts off entry-level buyers who need to save their cash for a down payment or furniture. You're more likely to find a bargain if you work with an agent who handles a lot of foreclosures and gets a heads-up on sales before they hit the market.
Short sales can also be dicey. A short sale means the lender is allowing a home to be sold for less than the mortgage amount. Short sales require patient buyers who can wait out the two to six months typically required to get approval from the bank. Meanwhile, the deal may fall through because the sellers disappear or choose not to cooperate with the process. Or the property could end up in foreclosure because the sellers haven't made their mortgage payments.
4. Rates are cheap.
If there's a silver lining to the recession, it's that interest rates will stay low. That's because investors continue to seek the safety of long-term Treasury bonds, which largely determine mortgage rates. Throughout most of this year, the 30-year fixed rate has hovered near 5%. The 5/1 adjustable-rate mortgage, which has a fixed rate for five years and then converts to a one-year ARM, recently averaged 4.8%.
Keith Gumbinger, who closely follows interest-rate trends as vice-president of financial-publishing firm HSH Associates, expects the 30-year fixed rate to stay around 5.5% for the rest of 2009, absent either a market collapse or economic growth (especially stepped-up hiring). He says that downward and upward forces on rates are canceling each other out right now.
If you can qualify for a mortgage on the home you want at today's rate, holding out for a slightly lower rate is probably a fool's errand. And, if inflation resurges, locking in today's interest rate (and mortgage payment) will look brilliant in hindsight.
To get the best rate, you must put 20% down and have a credit score of 720 or more. Many home buyers have turned to FHA-backed loans, which require a minimum down payment of 3.5% of the purchase price (see Can You Get a Mortgage?).
5. Demand is growing.
In July 2009, existing home sales rose 5% over the year before-the first year-over-year gain since November 2005, according to the NAR. That period also marked an increase in sales over four consecutive months, for the first time since June 2004 (except in the West, where sales fell by 2% between June and July).
The NAR reports that the number of homes for sale fell by 11% from the year before, and at the current pace of sales, that represents a 9.4 months' supply (a four- to six-month supply represents a market balanced between buyers and sellers).
In some areas, competition for deals can be fierce. Atlanta's Debbie Sonenshine, of Coldwell Banker, says that a good house at a good price will get multiple offers and sell quickly. What's a good house? It's clean, it shows well, and it's in a good neighborhood in a good school district.
what about waiting until the 2nd half of the “W”
One thing that would push me to buy would be concern for increasing interest rates if inflation hits.
There's an old saying. When should you buy? When you can.
Traditionally the best season for home sale bargains is during the holidays, and prices jump in the spring. However if the air keeps letting out of the economy, all bets are off.
One BIG reason to hold off buying a home: LAYOFFS ARE CONTINUING!!!
6. You will save us:
Cause when the market turns down and you get stuck with the now worthless property, we get to yell ‘SUCKER’.
I think I’ll just pay off my farm and stay right here.
My bunker is already built and stocked and my machine gun turret in the third floor attic just needs a few finishing touches...a little more insulation, some of the windows painted black, etc. ;)
(Think I’m kidding? I am. Sort of...)
I’m looking to buy again here in LA. Great prices!
HOw can rates be historically low?
I was seeing 4.25 fixed about six years ago. They were historically in the two percent range in the fifties an sixties.
These reporters consider history to be last week.!!
It’s an excellent time to rent too.
Another one is that the commercial meltdown with put more houses on the market.
I mostly disagree, and that’s coming from someone who’s about to close on a new home.
Yes, interest rates are likely to go up in anticipation of inflation.
But the downward pressure on prices will be increasing in the coming years, in my opinion: a huge “shadow inventory” of underwater homes, not yet foreclosed but doomed to that result, will hit the market in 2010-12 as “teaser rates” continue to reset upward.
With all of that add SUPPLY hitting the market, and with DEMAND unlikely to increase overall due to the job situation, I fail to see how PRICE isn’t going to keep falling for a few more years. Will there be updrafts, “suckers rallies”? Sure. But if my life situation were different, I’d wait.
Have fun. We’re starting a couple of short sales for clients in O-side and Murrieta. I loathe the slow bank responses. But it’s business and both are neighbors.
I will agree with you about the additional inventory. Why would the banks release them any faster than they are now?
We did 4.37% loans in June. Now doing 5.35 after going to 5.5% after a short dip earlier this month. I hear ads under 5.5, but no detail on points or fees. I think a year from now, we’ll see 6.8-7.0%, with prices similar to now.
The question is:
How long will it be before it’s a good time
to sell the one I already have?
“Most” people can’t afford to own two houses.
I’d have to unload the one I have first, and
there really are very few buyers standing in line.
Dumbest article in weeks. All over the press this week are the alarming warnings about the ARM’s ready to explode as they reset, triggering a wave of foreclosures that will dwarf the first wave. This process will play out over the next two years. But now is a good time to buy. Yeah, right.
Not to mention the coming Cap and Tax vote in the Senate : o If that sick puppy passes, folks will have a heck of a time unloading any home that is more than 5-10 years old : /
Tatt
I've read that parts of CA,NV and FL...all having seen huge jumps in prices in the early and mid part of this decade...have seen huge drops in the last year or two.I've specifically read that Florida's crash is still in progress.Don't know if that applied to CA as well.
YIKES!! In short... FHA is gonna need a multi-billion dollar bailout from the Congress... or if they go belly up... the housing market is kaput...
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