Is Now the Right Time to Buy?

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by Mark Vanderhoff
on Monday, May 11, 2009

One of the most common questions people ask me is, "Is now the right time to buy?" Many people believe in some optimal time to purchase, which lies either at the bottom of the market or just as the market begins to gain traction. This focus reminds me of the stock market saying, "Timing the market is a fool's errand."

Instead, the right questions should focus on a person's income, savings, life goals, and current circumstances. It's always the right time for someone to buy, but is now the right time for YOU to buy?

Before I delve into some criteria to help answer this question, let's put this period into historical perspective...

Interest Rates Are At An All-time Low

In the early 1980s, interest rates peaked at 18 percent. For the past century, borrowers have paid rates in the high singles and low double-digits. Right now, the Federal Reserve is holding interest rates low to stimulate buying and fight deflation. If history is any indicator, however, the Fed cannot hold interest rates this low for much longer - and there will soon come a time when they will purposely raise them to fight inflation.

Prices Have Slid to a Historical Equilibrium

A graph showing the historical appreciation of homes in the United States would have a prominent spike in the past several years, followed by a sharp recent decline. Interestingly, the current decline has crossed paths with the very point at which prices should be - assuming we never saw the past real estate boom. In some areas, prices are even lower they should be!

Inventory Has Never Been Better

No doubt, the recent bust and the sub-prime mortgage mess has been cruel to some people. Many investors who bought at the peak now want to rid themselves of properties that are not appreciating as fast as they speculated. Other earnest homebuyers have found the burden of their sub-prime mortgages too heavy to bear. These two groups are both desperate to unload their homes, adding hundreds of thousands of listings to the normal mix of homes for sale.

Considering the factors of interest rates, price and inventory, there's never been a better time to buy a house. But is it the right time for you?

Ask yourself these questions:

How much savings do I have?

If you answered "none," tackle budgeting and saving before home ownership. If your savings measure in the hundreds, figure out how to save more. If you can measure your savings in the thousands, however, you might be in the game. Here's something to consider: closing costs average $3,000 to $5,000. While some loan programs offer 100 percent financing, most government-backed loans require at least three percent down, while private-sector loans require five to 20 percent. For advice, visit a mortgage specialist and consult a Realtor.

Does my current income situation appear steady or improving?

If you are genuinely worried about an imminent job loss, now is not the time to buy a home. While nobody can predict whether prices will move up or down in the next few years, most experts can agree any appreciation will be nominal. In other words, even if prices start going up again, they won't go up enough in the next year or two to cover the costs associated with buying and selling a home, making it tough to break even if you suddenly need to sell due to unemployment.

Do I want to stay where I am?

If you intend to stay in the same area for at least three to five years, homeownership might make sense. But if you plan to move in the next year or two, the costs associated with purchasing a home will eat up whatever nominal appreciation we might see in the next couple of years.

Am I a First-Time Homebuyer?

There might never be a better time for First-Time Homebuyers to enter the market than this year - thanks to an $10,000 in available tax credits. The prospect of $10,000 in free money, which does not have to be paid back, could easily buffer any risks from another year of price declines, and makes fixer-uppers more accessible than ever before. It's also uncertain whether these credits will return in 2010, so those who wait could miss out. For more information, see my article on First-Time Buyer Tax Credits.

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About the Author - Mark Vanderhoff

Contact Mark Vanderhoff:
Keller Williams Realty
828-335-3794
markv@kw.com
markv.yourkwagent.com

Learn more about Mark.