Is it time to buy?
The real estate question for the ages is “When is the right time to buy?” Everyone wants to know the answer, which no one definitely has. It’s really all just speculation, opinion and a little bit of luck.
According to the National Association of Realtors, it’s more affordable to buy a house today than it has been in a long time. Today’s high affordability combines two factors – low prices and low interest rates. But the prices won’t be low for long and are already on a tear across the nation.
Prices of existing homes rose 10 percent in February and March nationally from a year ago, and although our busy selling season is starting to wind down, in most other parts of the country it’s just beginning. So who knows where those numbers will end up by the fall? Part of the reason for prices starting to edge up is the lack of inventory of homes available to buy, which have fallen to 20-year lows.
Many homeowners are still not willing or able to sell at prices that are down from their 2006 highs and are sitting on their properties. New construction is just now starting to add properties to the marketplace, and banks are selling fewer foreclosures. Investors also are making a serious dent in available inventories by buying undervalued homes and converting them to rentals. A combination of affordability and rising rents also have pushed first time buyers into the market after they calculate that their monthly mortgage payment may actually be lower than their rent.
There is also a physiological factor at play in rising prices. First of all there is a pent up demand for homes with so many buyers sitting out the last five years waiting for the market to hit the bottom. It’s the old “if I’m going to get in I better get in now” thinking that is having a lot of influence on prices.
But is the housing market on a sugar high setting us up for another bubble? It’s no secret that the Federal Reserve’s goal is to keep interest rates low, but without knowing just how long they’re going to control the rates, it’s impossible to time the market. We could end up with an affordability issue for buyers if the Federal Reserve brings interest rates up to a more reasonable 6 percent on top of already high prices. For those who can afford to buy, their dilemma is to jump in now at prices higher than they were a year ago or wait a year, pay even more and risk higher interest rates.
In spite of the affordable real estate environment, many people still can’t get into a home because of bad credit, no credit or no down payment. Even people who are finding jobs as the economy starts to improve will still need time before they have the means to afford a home, and there’s a good possibility that by the time they’re ready, prices and rates will both be higher.
Most financial and real estate professionals think this is a once-in-a-lifetime opportunity to buy real estate. It certainly appears to be, but don’t let yourself be led by the masses. Do your homework and make the best decision for you and your family. That’s when you’ll know it’s the right time.