I recently read this in Bloomberg Businessweek, it is a great article written by Marc Roth. Enjoy.
Now's the Time to Buy Your Dream House
If you can afford it, home prices remain at an all-time low and selection an all-time high, writes Marc Roth
Wait a second…
BusinessWeek just ran a
cover story saying home prices won't rebound until 2012, and here it is starting a real estate column?
What gives?
Well, the reason it's a perfect time to launch this column should be clear. There is an opportunity in residential real estate ownership unlike any we've seen in quite a long time, a perfect storm of sorts that is unlikely to last much longer. Home prices are down, interest rates remain near historical lows, and inventory is high. Thus, those with stable jobs and good credit can find their dream home, pay a price lower than any time in the last five or more years, finance it at a very favorable interest rate, and thereby be perfectly positioned for the housing recovery that the magazine wrote about.
Most of us who remember shopping for a home in 2005 and 2006—when national inventories were extremely low—recall how difficult it was to find our dream home in our preferred neighborhood at a price we considered affordable, let alone realistic. With so few houses available, any home in a desirable area sold regardless of its condition or layout—often before it was even officially listed.
According to the National Association of Realtors, the inventory of existing homes for sale peaked in November of 2008 at an 11 months' supply. There was a 9.6 month supply at the end of May and, from what I hear, it has fallen since then.
While you think your dream home will remain on the market forever; the selection is shrinking.
You Can't See the Future
If we all had a crystal ball, we'd time our purchases by buying at the bottom of every pricing cycle. However, we all know that most of us are no better at picking bottoms than we are at selling tops. NAR statistics indicate that the national average for existing home sale prices peaked at $230,200 in July of 2006. In January of 2009, its lowest point, the average fell to $164,800, down 28.3% from its peak.
Since then, despite foreclosures still making up a significant portion of the transactions, the average price has slowly climbed each month. It stood at $173,000 at the end of May.
While mortgage rates have always climbed slightly, they, too, are near historic lows. Freddie Mac (
FRE) reported recently that the average 30-year fixed mortgage rate is down to 5.32%. When I bought my first home in 1992, I recall paying around 8.5% and thinking it was a good rate. My sentiment back then was largely driven by my vision of my father getting stuck in a rate around 18% back in the early 1980s.
Given the economy over the last couple of years, we are all rightfully skeptical. When you see your investment portfolio drop dramatically—the Dow fell by more than a third, and the S&P and NASDAQ did even worse last year—and the unemployment rate continue to rise you have to think twice when someone tells you home prices are on sale.
A Great Time to Shop
But the numbers—both current and historic—show it is indeed the case. While the unemployment rate is high, the rate of people losing their jobs is slowing and it appears that inflation has moved up the list as a primary economic concern. And it's reasonable to expect any increase in inflation to also include an increase in home prices.
I do not claim to be Nostradamus, but I am observant enough to understand we are at a unique and opportunistic point in time within the realm of residential real estate. There are some terrific homes on the market today, at prices historically quite low, with attractive interest rates available to those with good credit.
I'm not suggesting everyone run right out and buy a home above their means. But I am suggesting that if you don't yet own a home, or if you own a home and have been considering trading up, now is a great time to go shopping.
Marc Roth is the founder and president of Home Warranty of America, which touches just about every part of the real estate industry since it sells through builders, real estate agents, title companies, mortgage companies, and directly to consumers.
