Home buyers, especially first time buyers, need to break away from the confusion of the daily news cycle about real estate. Here’s a longer range view.
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March, 2010
Real estate news is saturating the business media lately, because so many people realize that the health of the real estate market is crucial to the nation’s economic recovery. The problem is the news can be confusing. One day you hear that foreclosure activity was down (which is good) but still much higher than one year ago (which is bad). The next day you hear that pending sales for last month were down (which is bad) but much better than one year ago (which is good). So, what do these confusing news reports do to your attitude if you are thinking about taking advantage of the $8,000 tax credit and buying a home this spring? Are you choosing to focus on the good news or the bad news?
Well, here are four items that are not getting a lot of coverage. Taken together, these four facts should leave no doubt in your mind that this is possibly the best time to buy real estate in at least a generation.
1. Prices are down, and in many areas are still falling — although more slowly than last year. If you’re a buyer of real estate in this market, you are definitely seeing lots of inventory and you’re seeing it at lower prices than you are accustomed to. The fact that the rate of decline is slowing means we’re near or at the bottom, and in some areas prices are actually stabilizing and beginning to make very small advances. Generally speaking, your dollar buys you more house now than at any time in the last five years, and it might not get any better than this.
2. Interest rates are at historic lows. The cost of borrowing the money you need to buy your home is incredibly affordable right now. And the fact that we can actually say both of these things at the same time is itself historic. In the last fifty years we’ve had many periods of time where either prices were low or rates were low, but its nearly unheard of to be able to say both at the same time. So, not only does your dollar buy more house, the interest you’ll pay on that dollar is very cheap by historical standards.
So, we have these two incredible opportunities existing — three, counting the $8,000 tax credit available until the end of April. But, I hear you ask, “How can we be sure that this situation won’t go on for awhile?” That’s where the last two of my four facts come into play.
3. Interest rates won’t stay this low for long. Most economists agree that when the economy starts to gain real steam, fear of inflation and the national debt will force the Federal Reserve to increase its interest rates to banks, who will then pass that increase along to consumers. We could be looking at substantial increases over time, which will leave you kicking yourself for not acting while the cost of borrowing money was so low.
4. Statistics point to a potential housing shortage in a few years. There are a couple of things at work here. First, new home builders have cut way back on their building to “ride out” the recession. It will take awhile for them to get construction back underway and lay out and design new housing developments once they see buyers coming back to their model homes. Second, there is a new wave of homeowners beginning to search: the “echo boomers,” or the children of the Baby Boom generation. This generation is estimated to be 50% larger than the original Baby Boom itself, and they are now roughly in the 18-31 age range: prime first-time homebuying years. Basic supply and demand will rule the day: housing will be in short supply and prices will rise.
There you have four very good reasons to step back from the day to day news cycle and take a long view about home ownership. So, what can I do for you today?
