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.
People will either rent or buy. They have to live somewhere. Section 8 or whatever. If you can get cash flow, own a rental. If you can afford it, buy a house for yourself. That’s the way it’s been and it will remain that way. The only question is the direction and level of price. Steady population increase creates a demand in some segment of the market or another. It’s really not very complicated.
I am saving money now. When I buy, I will buy in cash, and avoid interest. When I sell, I can either sell outright, or if the interest rate is high, owner finance, and take the high interest.
Equity is not very liquid. It's not safe. Any you may not be able to take it out if and when you need it. You can invest the money in a conservative fund with no loss of principle and after some years have enough money to pay off your loan and still have your initial investment. But that's another topic.
Don’t forget the Berm and some wire at the bottom of it.
“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”
That’s true - if that monstrosity passes with the retrofit requirements, sales of existing homes will all but dry up.
I’d wait until early next year. Prices are still going down in L.A. Next wave of foreclosures is going to take prices down another 10%.
I can tell you from the being in the foreclosure industry that especially in southern california tens of thousands of bank owned homes are sitting on the banks books unlisted right now. Plus the tens of thousands that they are not foreclosing on for 12 or 15 months, this equals a major downward push. FannieMae and FreddieMac both have come out and said the current 28% of US mortgages that are underwater will be around 50% by 2011. This is not a time to buy real estate as an investment.
Home prices will depend heavily on if people have jobs to buy homes, or a couple have jobs to keep up with their mortgage payments How does the job situation look in San Diego, CA? That is the local barometer you must use to determine if prices will go up, remain the same or drop.
Have never seen coastal homes so inexpensive. No regrets.
Interesting take but several factors need to be looked into before the jump to buy.
Here in Florida condos are dirt cheap and will not recover any time soon. The so called second wave of dumped REOs is about to be seen which will drop the market waaaaay down. Depending on where ya look condos can be bought for 40% of tax value.....nice places and possible income producers. But more people and money is flowing out so buying anything in Florida is risky. Then there is the HOAs.....these folks have nothing to do except make up screwball rules.
I was set to buy 3 very nice condos two had sold for over $ 250,000 4 yrs ago and I was getting them for 65,000. The other was extemely nice and had sold for 385,000 and I was getting it for 120,000.
It was a CASH sale and all set but the HOA said I must be interviewed and show proof of income to satisfy them I can make the HOA dues!!!!!!!!
I went to the board meeting and told them to get F____. The realtor almost had a heart attack LOL. Good ol hanging chad Broward county LOL. There are massive complexs all over with just one or two condos occupied per floor!
A good rule is not to buy anything in Florida but if ya must make sure ya come close to stealing it! And under no circumstances believe a word a realtor says...not one word!
“Another one is that the commercial meltdown with put more houses on the market”......you nailed it! Anyone thinking of buying should read and study things being said on FR. We are just in the eye of the storm now floks...be careful.
Another point to consider...and this is big. Some folks here in Florida are just walking away from mortgages....or setting up short sale scams.....live in the home for a yr or more and make no payments to the bank LOL. Then just move on. The results of this will be seen as part of the second wave starting early next year. IMHO
Good advice, but weird, really weird photo.
Where did you buy?
In other breaking news, your barber thinks your hair's getting a little shaggy.
Check! :) I used to be pretty proficient in setting up claymore mines, too. ;)
People buy for various reasons. My question earlier was will the continue to release them at the current pace or increase the number.
San Diego attracts people because of the weather. Many military and retirees. Military is the naval base and Camp Pendleton, which are solid.
My recommendation is wait. See how the retail sales are this Xmas. If it does not improve compared to last Xmas or gets worst, then real estate in the area will stagnate or go lower. Bad retail sales also mean commercial real estate (malls and office buildings) will collapse. Currently federal TALF money is giving them some breathing room on the balloon mortgages coming due in 2010. When you go shopping in the area, take note on how many office and mall vacancies there are in the area. Alot of for lease signs or empty stores in the strip malls as well as the indoor malls (pay attention to the anchor stores, they are the life blood for foot traffic for the smaller stores) provide good clues.
If you want to wait, wait. The winter is a traditional down time. For the summer the sales were up over last year. Since school started I'm worminmg 6 new clients. If you don't have to buy wait. Where we are the increased number of buyers has caused a slight increase in rpices. I'd keep my eye on the interest rates.
Commercial has it's own life. There's a trillion in loans to be re-cast and it is forcasted that a large part of that will default over the next three years.
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