Buyer’s Mid-Year Market Report
Top 10 Reasons Why It’s One Of The Best Times In History To Buy
Compelling reasons to buy, continue to mount as real estate market activity begins to rebound during the first half of 2011. Every Buyer should consider the following points when determining when to buy:
- Quality of Life– With the heavy emphasis placed on prices during the past 5 years, buyer’s may easily forget that the primary reason for purchasing a home is because of the quality of life it can provide. As a buyer, write down the answer the following questions; “If I were to buy today, what would it mean to me?
- Interest Rates– With the closing this month of the Fed’s stimulus spending, QE2 or quantitative-easing round 2, the likelihood of increased interest rates in the near future is high. Every buyer should consider rates over a typical 10-year period since 1965, have averaged 7.5%-8.5%. At 5% there is a substantial savings every buyer can enjoy before rates increase. It costs approximately .60 cents/month/1% interest rate increase for every $1,000.00 financed. Multiply this monthly number by the number of months you expect to own the house and the extra cost can be staggering.
- Bottom of The Market May Be Near– The 4 prime indicators to determine how close we are to the bottom of the pricing market are; Supply, Demand, Consumption (Month’s Supply of Homes), and Value (Price Per Square Foot). In most markets these indicators show a buyer where they may be in relation to the bottom of the market. For example, according to experts, prices have now dropped to 2002 levels in many parts of the country. Ask us for details on these indicators. You may be surprised at the story they tell.
- Recaptured Value or Depreciation– There may be a great opportunity to take advantage of additional equity based on the market trends since 2005. The response to the rapid rise in the price of homes, many market have appeared to overcorrect with values now lower than what they should be. The overcorrection can be calculated by looking at the price of a home in 2002 and compounding that price annually by the 5% appreciation level that has been typical each year in most major real estate markets.
- Residential Construction Costs– In most markets, the price of an existing home is significantly less than the cost to purchase a newly built home. The difference in costs or savings represents additional equity that a homebuyer may have when the market returns to normal and new construction activity picks up. This supports the contention that prices have likely overcorrected giving present buyers additional equity opportunities if they purchase now.
- Rental Rates– Investors typically purchase rental units to generate income from rents payments and appreciation. If they can charge more they will. So, it’s not surprising that rates have been increasing lately, especially given the number of homeowner’s that have lost their homes to foreclosure, the number of homebuyers that can’t qualify for a home, the population increase and the lack of new construction during the past 5 years to meet grown demand. Expect future foreclosures to create even more pressure on prices. Buyers who purchase a home with a fixed-rate mortgage, can lock in the monthly payment for as long as they own the home. Compare this monthly cost to the increasing costs of rental during the coming years.
- Investor Purchases– Prices have gone down so significantly that many investors have jumped at the opportunity to purchase distressed property at rock-bottom prices. Owner-occupant buyers are now having to compete with cash investor/buyers by paying more. Expect this trend to continue and prices to stabilize or increase in many markets.
- Today’s Decisions Will Be Forever– The opportunity to get more house and the best selection, and the opportunity to get the best price will be a decision that affects many homeowners for the rest of their lives. Getting more house because of low interest rates makes sense because the savings will last “forever”. Conversely, if a bigger, better home is not secured soon, the opportunity to take advantage of the more for less, may not present itself again.
- Pent-Up Buyer Demand– Most Buyers have been sitting on the fence waiting for signs that housing prices have reached the bottom. It has become a “habit” to wait, even with signs of improvement. As a buyer, it is important to remember that the best buying opportunity (Price and Selection), occurs before everyone else jumps back in.
- Housing Affordability– According to the National Association of Realtors, housing affordability based on housing prices, interest rates, and median family income, is at the highest level since 1979. This means that buyers will typically be able to afford more home than any other buyers in the past 32 years.