For many buyers, this has been the big question of the past 5 years – when is the right time to buy? We can honestly say the market has not yet hit bottom and it’s not expected to before the end of the year. So the obvious answer is “no”, right? Wrong! There are several factors involved that really should get you thinking about getting ready to purchase soon.
#1 – Real Estate is Unique – I’ve heard a lot of buyers make the statement that they’re going to wait until the absolute bottom before making a purchase. The issue is, buying a home isn’t like buying 100 shares of AT&T or pork bellies or oil futures. You can’t go to your broker and say, “I’d like to place a limit order to purchase a 4BR/2.1BA home with a big deck, corner lot and stainless steel appliances in the subdivision down the street for $120,000”. It doesn’t work that way. It looks pretty funny on paper and seems obvious, yet, this is the way some buyers are looking at the real estate market. If you’re really trying to find not just a good deal but a home to be happy with, you’re going to want to start looking when the market is CLOSE to the bottom, not AT OR AFTER the bottom. Besides, the bottom in one niche may not be the bottom in another because when it all comes down to it, we’re dealing with unique items and unique locations.
#2 – Qualified Residential Mortgages – despite pressure from the NAR and other groups, there will likely be some type of legislation passed regarding Qualified Residential Mortgages. In a nutshell, lenders are required to keep 5% of the loans they sell – they’re no longer able to package 100% of the loans they sell into securities, take a profit then make someone else responsible for the outstanding debt. The exclusion to this rule are “Qualified Residential Mortgages” (QRMs). The legislation that’s being proposed is that QRM’s be defined as mortgages with at least an 80% loan-to-value ratio. This means 20% downpayment to qualify as a QRM. Now, consider that in 2010 roughly 75% of all loans written across the country did not include 20% down and it’s pretty obvious that 75% of home buyers would not qualify for a QRM. Now, this doesn’t mean that buyers that don’t have 20% down wouldn’t be able to buy a home, but since lenders have to keep more money tied up for non-QRMs, it’s expected that interest rates for non-QRM’s could rise a minimum of 2-3 points (so instead of the 4.5%, we’re talking 6.5% or 7.5% or higher).
#3 – Investor Activity – Last month, roughly 37% of the homes purchased around the US were cash purchases. Cash means investors. Investors getting into this market in a big way means the blood is already in the water and things could be starting to turn around. We’re already seeing multiple-offer situations for the really good deals. The best deals are selling quickly and often above list price. Combine this with #1 above and it’s easy to see why you need to get prepared to purchase and then wait until your home comes along.
#4 Interest Rates – Besides the threat that QRM legislation will raise interest rates for anyone that doesn’t have 20% down, there is the general feeling that interest rates will be going up. There is the worry that inflation will kick in in late 2011 or 2012. There is real evidence that the fed will stop buying government bonds and when that happens, interest rates will rise because there are fewer investors buying them. This could lead to more liquidity problems like we saw in 2008 where it was tougher to get a loan and it’s a sure bet that it will cause interest rates to go up on loans. Remember, if you’re planning on holding on to your home for a while (and any buyer in this market has to really be thinking of holding property at minimum, 5 years), interest rates that rise 2% means that values would have to fall another 10% for you to make that up.
All of these factors point towards a great time to buy a home. Now, some of you may be thinking, “that’s just Realtor talk – every Realtor just wants buyers to buy a home”. But if that’s the case, then why are investors (that are often very cautious about the market in the first place) jumping in right now in a big way? We’re not talking about one or even two things that make this a great time to buy – it’s EVERYTHING.
What is an FHA loan? Talk more about this market and how to get started towards buying a home, please give me a call directly at (630) 346-1041 or email me at firstname.lastname@example.org