Now's the Time to Buy Your Dream House
If you can afford it, home prices remain at an all-time low and selection an all-time high, writes Marc Roth
By
Marc Roth
Wait a second… BusinessWeek just ran a cover story saying home prices won't rebound until 2012, and here it is starting a real estate column?
What gives?
Well, the reason it's a perfect time to launch this column should be
clear. There is an opportunity in residential real estate ownership
unlike any we've seen in quite a long time, a perfect storm of sorts
that is unlikely to last much longer. Home prices are down, interest
rates remain near historical lows, and inventory is high. Thus, those
with stable jobs and good credit can find their dream home, pay a price
lower than any time in the last five or more years, finance it at a
very favorable interest rate, and thereby be perfectly positioned for
the housing recovery that the magazine wrote about.
Most of us who remember shopping for a home in 2005 and 2006—when
national inventories were extremely low—recall how difficult it was to
find our dream home in our preferred neighborhood at a price we
considered affordable, let alone realistic. With so few houses
available, any home in a desirable area sold regardless of its
condition or layout—often before it was even officially listed.
According to the National Association of Realtors, the inventory of
existing homes for sale peaked in November of 2008 at an 11 months'
supply. There was a 9.6 month supply at the end of May and, from what I
hear, it has fallen since then.
While you think your dream home will remain on the market forever; the selection is shrinking.
You Can't See the Future
If we all had a crystal ball, we'd time our purchases by buying at
the bottom of every pricing cycle. However, we all know that most of us
are no better at picking bottoms than we are at selling tops. NAR
statistics indicate that the national average for existing home sale
prices peaked at $230,200 in July of 2006. In January of 2009, its
lowest point, the average fell to $164,800, down 28.3% from its peak.
Since then, despite foreclosures still making up a significant
portion of the transactions, the average price has slowly climbed each
month. It stood at $173,000 at the end of May.
While mortgage rates have always climbed slightly, they, too, are near historic lows. Freddie Mac (FRE)
reported recently that the average 30-year fixed mortgage rate is down
to 5.32%. When I bought my first home in 1992, I recall paying around
8.5% and thinking it was a good rate. My sentiment back then was
largely driven by my vision of my father getting stuck in a rate around
18% back in the early 1980s.
Given the economy over the last couple of years, we are all
rightfully skeptical. When you see your investment portfolio drop
dramatically—the Dow fell by more than a third, and the S&P and
NASDAQ did even worse last year—and the unemployment rate continue to
rise you have to think twice when someone tells you home prices are on
sale.
A Great Time to Shop
But the numbers—both current and historic—show it is indeed the
case. While the unemployment rate is high, the rate of people losing
their jobs is slowing and it appears that inflation has moved up the
list as a primary economic concern. And it's reasonable to expect any
increase in inflation to also include an increase in home prices.
I do not claim to be Nostradamus, but I am observant enough to
understand we are at a unique and opportunistic point in time within
the realm of residential real estate. There are some terrific homes on
the market today, at prices historically quite low, with attractive
interest rates available to those with good credit.
I'm not suggesting everyone run right out and buy a home above their
means. But I am suggesting that if you don't yet own a home, or if you
own a home and have been considering trading up, now is a great time to
go shopping.
Marc Roth, is the founder and president of Home Warranty of
America, which touches just about every part of the real estate
industry since it sells through builders, real estate agents, title
companies, mortgage companies, and directly to consumers
.
Interest in Vacation Homes Warming Up
This article was printed in the Greensboro News & Record, Sunday, May 3,2009, written by Jim Woodard:
With temperatures warming and summer just around the corner, many people are getting the itch to buy or build a vacation home. Fueling that itch is news that the average price of a second home is down about 23 percent since 2007.
The median price of the typical vacation home is about $150,000 - down from $195,000 in 2007, says a National Association of Realtors report. As a point of comparison, the median price of a vacation home was about $204,000 in 2004. The survey found 80 percent of vacation and investment property owners agreed that current conditions constitute a buyer's market.
"The long-term underlying demand is favorable for vacation homes because of the large number of middle-age and middle-income Americans that buy these properties," said NAR Senior Public Affairs Specialist Walter Molony. "These have long been the primary buyers of vacation homes.
"In recent years, this market has been driven by the baby boomers, but there are now two even larger population groups coming up right behind them. Those younger segments will continue to fuel the vacation home market for the next 10 years."
Many people who dream of a quiet vacation home are getting more serious about activating that plan. "I can tell you that people who would never have purchased a detached single vacation home on the coast are now seriously considering it," said Christine Karpinski, author of "The Vacation Rental Organizer."
"Homes that would have once cost $3 million have now fallen to $1.5 million. Today's buyers know that the price won't stay down long. They may never be this low again."
The survey shows 34 percent of consumers purchased vacation properties within 100 miles of their primary residence. That suggests they intend to use the homes themselves, as opposed to renting them or selling them for a profit.
An increasing number of families are turning to manufactured vacation homes, the survey found, because they can cost between 20 percent and 50 percent less per square foot to erect than comparable site-built homes. Many owners of vacation homes are finding that renting their property when they're not using it is increasingly lucrative. Rents tend to remain high or are rising in many areas, while purchase prices have been decreasing.
Q: Are home builders becoming more confident?
A: Confidence in the market expressed by home builders picked up substantially in April, says a report by the National Association of Home Builders. Builder confidence is at its highest point in nearly seven years. New home sales, inspections by prospective buyers and expectations lifted significantly in March, according to a separate survey conducted by noted real estate researcher and consultant John Burns. Improvements in the market can be partially attributed to seasonal factors. Of course, market activity and trends differ in different regions. But future sales potential is very positive, according to most of the surveyed builders. That was the case in all regions except in the Northwest, said the NAHB report. Interestingly, the report noted 18 percent of surveyed property buyers have purchased land as an investment. About 29 percent indicated they plan to buy land in 2009. By 2010, 47 percent expect to buy land.
Q: Is the rate of home sales increasing or decreasing?
A: A recent housing report shows the decline in home sales slowed significantly in March compared to sales in March 2008. Home sales in March were down only 5.8 percent when compared to March 2008. That's the best performance on a year-over-year basis in the last 18 months, according to Real Trends, a real estate research and publishing company.
Home sales in March showed improvement in all regions, a welcome surprise in light of other economic news that shows continued weakness in retail sales and employment, the report said.
"March results show that low interest rates, soft home prices and high levels of affordability are countering other more negative news in the economy," the report stated. "Home prices that have been under pressure for three years now are starting to firm somewhat - a trend that may continue in the months ahead. Doubtless, the first-time home buyer tax credit, the loosening of underwriting guidelines for FHA mortgages, and the Fed's intervention to lower rates are all factors assisting with the housing recovery."
Q: Are Federal Housing Authority mortgages becoming more popular?
A: Mortgage loans insured by the Federal Housing Administration are playing a major role in stimulating home sales. These loans account for about 20 percent of new mortgages. That's up from 3 percent in 2006. FHA mortgages are particularly helpful in making homes more affordable for families. Some FHA loans require small down payments, and qualification requirements are flexible. Also, the number of qualified FHA lenders has increased fivefold in the past two years.
Another advantage of today's FHA mortgages: They provide easy modification procedures for borrowers who fall behind on payments. The loans can be readily refinanced if interest rates decline. There are no income restrictions on FHA loans, so even affluent buyers may find these loans to be the most attractive in today's market. It should be noted that FHA loans still require a pre-settlement inspection of the property, but that process has been simplified significantly.
