Changing economic market- Good or bad time to buy?

Does this mean that it is a terrible time to buy a home? Definitely not. What it does indicate, though, is that it is crucial to keep a firm grip on your financial situation to avoid the kinds of potential problems that can occur in a changing economic market:

• House poor. By putting too much emphasis (and income) into buying a home, you may be forced to cut other expenditures, whether it be for travel, entertainment or some more important needs, such as education expenses or retirement funding.
• Financial exposure. Pushed to your financial limits, your exposure increases--the chances of not being able to meet your mortgage payment obligations increase dramatically as that payment takes a higher percentage of your income. In addition, if funds get short and you focus your payments on your mortgage, other loans and obligations (and your credit rating) can suffer.
• Housing values. Economic downturns are often accompanied by, at the very least, stagnation in housing values. And, even though it sounds crazy in markets that have seen double-digit annual appreciation in recent years, occasionally housing values will decline (as they have in recent years). Worse than a situation where it is difficult to pay your mortgage is one where there is the prospect of losing a home--or trying to sell it in a distressed market.

The Good News:

For the astute, this can be an excellent time to buy a home, for a couple of important reasons:

• Lower interest rates. Mortgage interest rates are low, meaning lower payments and the ability to devote less of your income to your housing expense. What it does NOT mean is that you can buy more house than you need at less payment.
• Less competition. As the market softens, fewer buyers will be in the market, meaning that your negotiating position will be enhanced--and, it is unlikely that you will have to pay thousands of dollars over the listing price in order to get the home you want. More negotiating power usually means lower prices and lower monthly payments.

How to Cope:

Dealing with a downturn is not that difficult if you remember to keep a couple key financial points in mind.

• Maximize your downpayment. My belief is that it is NEVER wise to put less than 5% down on a home. Even if the economic situation does not change, your personal situation may. Trying to sell (because of job changes, transfers or family size) a home in which you have no equity means that you will have to take money out of your pocket to sell. In addition, you will need cash for downpayments and closing costs on a new home should you need or want to sell.
• Get less than you qualify for. The historically established mortgage qualifying ratios (total payment, including principal, interest, taxes and insurance) of no more than 28% of total gross income and total debts (including mortgage and all other loan and credit card payments) of no more than 36% of total gross income are the MOST you want to qualify for. Better still is to buy a home that allows you to maintain even lower debt to income ratios, giving you some breathing room in the future.
• Your REALTOR® can be your best friend in these times. They know and watch the market everyday so if a great deal is posted they will get you into see that home ASAP. That means less money out of your pocket.

Summing up:

Getting a home in a changing economic environment is not all that difficult if you maintain your focus and your budget. Call your REALTOR®, let them know what you are looking for and put them to work for you!

By: Lisa Giancarlo, REALTOR®

www.lisagiancarlo.com