A slow economy offers great opportunities
When you read the news, it may seem that the economy still is not quite back on its feet yet. While the stock market is at record levels and housing prices are rising, many people are still wary over investing in a new property. However, there are some great reasonsas to why now is a good time to buy a house.
1. Owning is better than renting
When home prices were plummeting, many owners found themselves "underwater" with their properties falling below their original purchase value. At that time, it made sense to avoid the market and rent rather than own.
However, market conditions are significantly removed from where they were during the peak of the housing meltdown. With so many people turning to rentals, the supply has not been able to keep up with demand. The basic market fundamentals are pushing up rental prices as a result.
When you consider how much it costs to rent in many areas of the country, it simply makes more sense to buy your own property. In fact, some studies, including one by Trulia.com, show that in the vast majority of regional markets, you will do better paying a monthly mortgage as compared to paying monthly rent.
2. Interest rates are low
The interest rates for mortgages continue to stay at historically low levels. While the Federal Reserve is planning to cut back on its support for such low rates, we should see change occur gradually. What this means is that homebuyers still have time to benefit from rates that are near 50-year lows.
With the housing market beginning to pick up rapidly, rates could climb significantly in the next few years depending on how drastically the Fed rolls back its support. For this reason, smart consumers will see that now is the time to grab an opportunity that they might not see again in their lifetime. The more the economy recovers, the more likely it is that interest rates will rise.
Just a tiny increase in mortgage rates, can cause your monthly payment to rise by a hundred dollars or more in some cases!
Some real estate experts also believe that qualifying for a mortgage may become harder rather than easier in the near future. This may seem difficult to believe given the current tight lending policies, but there are indications that things will get worse.
For example, Fannie Mae and Freddie Mac may be doing less lending in the future forcing consumers to deal with private lenders. If the federal government reduces its backing of the mortgage market, we could see banks and other lenders instituting even stricter lending requirements. Many financial institutions are unable to take on much new risk as they are still dealing with bad debt left over from the last meltdown.
3. Prices are rising or stabilizing
In many regions of the country, home prices have been rising rapidly. While the situation across the nation is still very mixed, in most areas, prices are at least stabilizing. The huge slides we saw during the housing meltdown are likely over, according to most indications.
While some analysts fear that small drops can still occur, most do not think that we will see anything like the sustained damage that started in 2007. Homebuyers can have a good deal of confidence that their investments will remain stable at the least, while in many regions, they can see sharp price gains. To be cautious, you can avoid areas that seem to attract excessive speculation. A recent New York Times article discusses some examples of this trend (http://dealbook.nytimes.com/2013/06/03/behind-the-rise-in-house-prices-wall-street-buyers/).
One sign that property speculation is going on is when home prices are rising much faster than the local growth in personal income. Another thing to watch out for is sellers that are "flipping" homes at a rapid rate in a particular area.
4. Homes are cheap in many areas
While prices are high in hot real estate markets, in many areas you can still find very good bargains available. Some regions are just beginning to come out of the housing crisis, and sellers in these areas are eager to find buyers.
When the sellers outnumber the buyers, you can expect lower prices. Often, these types of conditions allow you to bargain the purchase down from the original listed price. Do not be afraid to play "hardball" if you really want a good deal.
Be patient and firm, and eager sellers may come around to your offer. Housing is more affordable now than at any time since the early 1990s.
5. Prices may be heading up soon
While prices are still low in the current market, you cannot expect this to last forever. With the economy on the mend, more buyers are entering into the market all the time. If the stock market is any indication, the economy may be set for fast growth in the not-too-distant future.
Rapid economic growth will almost certainly mean that home prices will rise in conjunction. Already, prices in some regions have been outpacing income growth. Smart consumers will want to take advantage of the current low prices before things start changing rapidly.
A stable economy should also mean that your economic prospects are brighter, and you should have fewer worries about your future ability to pay your mortgage. During the height of the "Great Recession," many people avoided such a large financial commitment because of concerns over future employment. Consumers wondered if they might not be able to make future payments and if they might not one day face foreclosure.
With economic conditions improving, you can buy a home now at low prices and interest rates with more confidence that you will be able to live up to your future financial obligations.
6. You get other financial benefits
When you purchase a house, you can deduct your mortgage interest rate and real estate taxes from your income tax payments. If you sell, you receive tax credits on any capital gains that you realize. However, the income tax deduction is only available when you itemize, so you need to make sure that the benefit trumps the standard deduction. When you take tax breaks into account, owning a home can sometimes be much cheaper than renting.
Many people also know view property ownership as a type of high risk investment to replace their old stock portfolio. For many middle class earners, memories of the stock market crash are still too recent to allow them to take risks in equities despite recent record highs on Wall Street.
Instead of buying stocks, many consumers are looking at real estate as long-term risk capital.
Mortgage payments are also a form of savings even if the home does not maintain its purchase value. In comparison, all the money paid for rent is lost. Unless you are able to save money from a lower rental payment, you will usually end up losing in the long run. Many people actually spend the money that they save from lower rent, so they do not save any money by renting.
Buying a home forces you save at least the amount that you are paying for equity in your property.
7. There's nothing like owning
The great advantage of owning over renting is that you are in charge of the property. You can make any changes you want including repainting, adding new rooms or even adding a new floor. You do not have to worry about landlords or about asking for permission for even minor modifications.
If you rent, the landlord can decide that they want to sell the home or move back in after your contract is up. With your own home, you will have more financial responsibility, but you also gain from the satisfaction that you can do as you please with your own property.