A Good Time to Buy a Home?
By Steve Gillman - 2009
The most common question in the real estate market at the
moment: Is it a good time to buy a home? You may be reading this
years after it is written, when conditions have changed substantially,
but there are always certain things to consider. So whenever
you find this page, ask yourself the following three questions
What Are Home Values Doing?
The thing most people are wondering about now when they ask
if it's a good time to buy a home, is whether prices have finally
stopped going down. A home is seen as an investment of sorts,
so we all like the idea of buying when values are going up. As
of early 2009 (I'm writing this in April) home values not only
are not rising in most areas, but seem to be falling still.
My wife and I just bought a house despite this. There are
several reasons why we felt comfortable with out decision. First,
prices don't seem to be falling much here (Canon City, Colorado).
Foreclosures are dragging prices down a bit, but the market here
is much more stable than in other cities and states. The fact
that prices never rose too far too fast during the "boom
times" probably has helped us.
That brings up an important point: Real estate markets don't
act the same everywhere. To determine if a bottom is near or
if prices are rising where you are, pay close attention to whether
houses are starting to sell slower or faster. Quick sales usually
mean prices will soon be rising.
We didn't buy counting on rising prices, however. That's not
the only determining factor, and it seems the problems in the
country will get worse and drive prices down 10% more - even
here where we live. What else made us decide it was a good time
to buy a home for us? Read on...
Where Are Interest Rates?
Right now you can get fixed rate 30-year mortgage loans at
about the lowest interest rate in your lifetime (no matter how
old you happen to be). The rate on our recent mortgage loan is
4.5%, and that's not a variable rate. It's a fixed rate for thirty
As long as you plan to stay in a house for a while, as we
do, this really matters. For example, suppose you pass on a house
that is selling for $200,000 and waited a couple years. Sure
enough prices fall another 10% in your area. However, what if
interest rates were up around 7.5% at that time? Perhaps you
get the house for $180,000, with a principal-and-interest payment
(assuming you have a 10% down payment and borrow $162,000) of
$1,132 each month.
Now suppose you bought at $200,000 now, again with a 10% down
payment. The payment on your $180,000 loan would be $912 per
month. Think about that. You would be paying $220 more each month
if you waited and bought the home for $20,000 less. Do the math
and you'll find that although you saved $2,000 on the down payment
you would pay $79,200 more in payments, for a total of $77,200
more over thirty years (assuming you stayed in the house that
long). With a simple example like this you can see the importance
of the interest rate.
What's Your Personal Situation?
A good time to buy a home? Consider prices and their direction,
and interest rates too. But also think about where you are financially,
and what your goals are. Is your income secure? Could you make
the house payments for six months if you lost your job? Will
you likely be able to find another job that will provide enough
income to pay for the house if it comes to that? Will you stay
in the area long enough to justify buying? (Renting will often
make more sense if you will be moving within four years or less).
They may be difficult questions to answer, but perhaps they are
the most important ones in determining if it is a good time for
YOU to buy a home.
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