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Is Now The Time To Buy?
The answer is this: If you're looking for that first house or if you've thought of moving up, now is as good a time as any to get into the marketplace, and perhaps a better time than seen in recent years. But how can this be? The nation is at war, the country is in a recession, and unemployment is climbing. Interest Rates Are Down If rates for 30-year, fixed-rate mortgages are at 8 percent -- about where they were a year ago according to HSH Associates, a leading financial publisher -- your monthly payment for a principal and interest on a $200,000 mortgage would be $1,467.53. Add in, say, $350 for taxes and insurance and the total monthly payment comes to $1,817.53. If lenders allow 28 percent of your gross monthly income for these four baseline costs, you would need $6,492 monthly to qualify for the loan. ($1817.53 = 28 percent of $6,491.17) But suppose financing is available at today's rates, perhaps 6.85 percent. Now the monthly cost of principal and interest is $1,310.52. Add in $350 for taxes and insurance and the total monthly cost is $1,660.52. In this case, lenders would require a monthly income of $5,930 to qualify. In other words, when compared with a year ago you could get the same loan for $157 less per month and you could qualify with $6,744 less income per year. Lower rates mean more people can qualify for given levels of financing -- and that more people can borrow additional dollars. National Trends Much is made of national trends and with good reason: National trends are easy to track, get lots of attention, and provide useful benchmarks. That said, national trends do not reflect a baseline reality: Real estate is local. If the local population is growing, if the nearby job base is increasing, if nearby new home starts are not sufficient to meet demand, and if mortgage rates are low then you can logically expect local home values to rise over time. It's not a guarantee -- there are no guarantees -- but price increases in such situations are at least reasonable. Perspective We live in an era of measures, numbers and statistics. For instance, the September jobless rate, according to the Bureau of Labor Statistics, reached 4.5 percent, up from 3.9 percent a year earlier. But did you also know that in September the total number of job holders increased by 800,000 positions? Did you know that while 7 million people were unemployed, 135.2 million had jobs? Did you know that a 4 percent unemployment rate is considered "full employment" by many economists? As a nation we've been doing so well for so long that any blip on the economic radar tends to get noticed. That's fair and we should be concerned. At the same time, let's not ignore the whole picture. Most people are doing well -- and will continue to do well. We're Having A Recession A recession is not a hideous event. It's a slow-down, not a depression. National economies move up and down, so recessions are normal -- we had them in 1973, 1980, and 1991. But even with the current slowdown we still have a $10 trillion economy. Most people have jobs today and will have jobs tomorrow. Will there be tough times in certain industries? Absolutely. Will some communities be hurt? Yes. But you need to ask what a recession means to you. Have you lost your job? Is your job in jeopardy? Is your household income about to decline? If no, then what about your housing needs? If you need to buy a first home, if you would like to move-up, what objective barriers stand in your way? It's true that some prospective buyers will delay purchases because of the current slow-down -- and for some buyers postponement makes sense. But the issue is not what other people are doing, it's the question of what's best for you given your particular circumstances. At the very least, review your personal finances, check mortgage rates, take a look at your local marketplace, and consider your needs. You may find that now is indeed a very good time to be a buyer.
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