Based upon the plethora of news articles about the general economy and the dire straights of the housing market that inundate the potential home buyer on a daily basis, it’s surprising all of us don’t head for the hills and hunker down for the long haul.
The reality is that people are making decisions and buying homes every day, and the pace is beginning to pick up. Trying to outguess the market, either at the top or the bottom, is always a difficult task.
Generally speaking, I have always believed if you wait until someone tells you the market is at the bottom, or top for that matter, you will have waited too long. Markets always move faster than the collection and analysis of data that will then point to a conclusion.
But again, how do you go about making a reasonably intelligent decision regarding timing? For every home buyer the answer to that question differs slightly. The real estate market is moving away from a decision being made primarily on a financial basis, one where home buyers grew to have an expectation their home would increase substantially in value every year- a philosophy that oftentimes had us treat our home as a credit card or checkbook. As a young man, and rookie real estate practitioner, I learned early on people bought and/or sold homes for a variety of reasons; birth, marriage, death, divorce, quality of life, school districts and for reasons and benefits other than appreciation. There was always a fundamental difference for me between the stock market and the housing market. “You don’t need to own stock, but you need a place to live” That simple fact means we have to have housing for everybody.
The number of households being formed in the last few years is growing at the same time the new housing product coming on the market has been declining. Given time, those factors will converge to give us a housing shortage. The downturn in the real estate market has been well over three years now, and you cannot keep people out of the market forever.
I sometimes feel like I am witnessing a scene from the children’s literary classic “The Little Dutch Boy” where a child is trying to stem the rush of seawater from engulfing his town by plugging holes in the dyke with his finger. Much like the story of the little Dutch Boy, cracks are forming in the recent barriers to home-ownership, and buyers are starting to filter through and reenter the marketplace. You can’t hold back demand forever.
We have seen tremendous numbers of buyers, particularly over the last two years, watch the market, assess the market and hesitate to get off the fence. That is OK. Ultimately, when you feel good and have confidence about your job stability and your personal financial situation, and you begin to have confidence in the housing market recovery, you will make a decision.
For the last several months, I have been touting residential real estate as an asset class that has repriced itself. Home prices have fallen, dramatically in some market areas, and oftentimes I see offering prices at one-half the price the same home sold for in 2005 or 2006. Starting in the 3rd quarter 2008, I also began seeing a disproportionate share of homes being sold “all cash” to investors. More than I have ever seen in my 32 year career. That told me money was beginning to flow from the stock market, hedge funds and other asset classes into the real estate market. This would not have happened if astute investors realized residential real estate was still going to be hammered and fall in valuation. Interest rates are low. Fixed interest rates between 4 1/2 and 5 1/2 for a 30 year mortgage are readily available, and obtaining a loan, while certainly more scrutinized than in the past, is not a problem for creditworthy purchasers.
And finally, lets talk about rents. Rental rates have not fallen, primarily due to the lack of home purchases sending people to the rental market. Many people that are currently renting can now own a home for the equivalent of your rent payment, and depending upon your tax situation, actually own a home for less than what you are paying on a monthly basis in rent. One of the financial benefits to home-ownership has always been the ability to deduct the mortgage interest and real estate taxes you pay on your principal residence. For most of us, this valued benefit remains as our most significant tax deduction—a deduction you are not able to take advantage of as a renter. In addition, the new stimulus package has also given the 2009 home purchaser another tremendous incentive—up to an $8,000 credit on your taxes.
*Please refer to my previous post: “The Obama Homebuyer Tax Credit De-Mystified” for information on the specifics of the $8,000 Tax Credit.
So ultimately, when all is said and done, the right time to buy is still a personal decision. But, and I say this with emphasis…..In my opinion, all the factors are pointing to an unprecedented opportunity for Home-Ownership that is sitting right under your nose today and for the next couple of months.
Remember, when demand starts picking up, prices stabilize, seller’s firm their resolve (they might not negotiate as much), and the ultimate cost of your home-ownership might edge up.
My final comment is another lesson I learned early on…. “It’s not the timing of the market, It’s time in the market”. Owning a home is a lifelong quest to better your life and achieve stability and some financial growth along the way.
Good luck with your search for a home: www.averyhess.com
Post written by S. Scott Avery, President, Avery-Hess, Realtors.