Tuesday, October 28, 2008

Still Waiting to Buy a Home?
6 Reasons Why Now is the Ideal Time to Jump!

  1. The number of homes available on the market is dropping significantly.

  2. Home prices are lower than they have been in the last 3 years, but seem to be bottoming out.

  3. Interest Rates are still historically at their lowest.

  4. The Home Sellers are very motivated.

  5. You can deduct your mortgage interest (plus other costs) on your tax return, something you can't do with rent.

  6. There is a limited time $7500 tax credit for first-time homebuyers.

Many potential homebuyers have been sitting on the sidelines waiting for the real estate market to bottom out. It's not a bad plan, as long as you have perfect timing. The experts can't even agree among themselves as to whether prices have reached the floor, so trying to time the market can be tricky. Though there are plenty of people who are buying properties right now, it will be nothing like it the rush there will be once prices start to rise again and everyone decides to jump into the mosh pit of buyers making offers!

OK, so there will be more competition in the next 6 to 12 months, but you want to make sure that you don't overpay for a home that you may be able to get for less in 6 months. So if you wait, you will get a better deal, right?

Not necessarily. First of all the inventory (number of properties on the market) has gone down considerably in the last few months, giving you less choices. When supply goes down, demand goes up. When demand goes up, prices tend to rise. It's a basic law of economics. Compared to last year, there are 23% fewer property on the market today, and the number of sold listings are up. The good news for you is that the median on-market home price is down 5.8% compared to October 2007 (for Essex County). But with selection dropping, can it be long before the market turns around?
Mortgage rates are still historically low (take it from someone who paid 14% in the early 90's), with rates hovering around the 6% mark. But rates are extremely volatile, especially with the shape of the financial market and everything that is happening with Wall Street lately. A couple of weeks ago the rates dipped into the 5%'s, but that only lasted a week before jumping up to 6.5% (they have settled a little since). It is likely that rates will trend up, according to most experts. With each jump in interest, you will be paying more in your monthly payment, which would negate any (potential) savings you would make by waiting to buy.

Another reason to buy now is that you are losing all your potential tax benefit of home ownership. You are able to deduct all of your mortgage interest, PMI & closing costs when you buy a home. This would result in a significant tax savings for you. On a $250,000 mortgage that could mean $4600 in tax savings, or about $380 per month over renting. Try out the Rent vs. Buy and Tax Savings calculators here.

One of the recent incentives initiated by the Feds is the First-Time Homebuyer Tax Credit. It gives a 1st time buyer up to a $7,500 credit on your taxes when you buy any home purchased between April 9, 2008 and July 1, 2009. This is not a deduction, this is an actual credit. So if you owed $6,000 in taxes next year, not only would you not have to pay them, the IRS would give you an additional $1,500 refund. If you don't owe any taxes and you are expecting a refund, then the $7,500 would be added to your refund. How cool is that? The caveat is that this is really a refundable credit, so it would be repaid, but only at the rate of around $500 per year starting in 2011. It is basically a no interest loan payable over 15 years. Everyone should take advantage of this credit! Go here for some FAQ on this credit.
One thing I want to point out about what you hear in the media. All real estate conditions are local. What is happening in another part of the country has no bearing on what's the market is like here in Massachusetts, and especially the North Shore.

*All mortgage calculations and tax savings are estimates and are examples for informational purposes only. Please contact your financial, tax or mortgage advisor for more information.

Saturday, October 25, 2008

What's Really Happening with Real Estate Market
I'll be the first one to tell you that I'm no expert on the national real estate market. All I am concerned about is what is happening in the local market and how it will affect my clients, my agents, and ultimately...my business. Keep in mind that real estate is local. What is happening in California, Florida or Texas has no bearing on what is happening in the real estate market on the north shore of Massachusetts.
During the first 2 quarters of this year (2008), things were looking dismal, with a continued downward slide in prices, number of units sold, and traffic (number of inquiries received, open house attendees, web site visits, etc.). But something happened in the third quarter beginning in July. Buyers started making offers...and suddenly our business is up 85% year to date over 2007, and over 200% for the quarter. The fourth quarter has started off with the same gusto.
What has caused this complete change? I believe it is the result of several ideal buying factors all occurring at once:
  • Home prices have come down to a point where they haven't been in years. Add in the bank owned and short sale properties that are on the market and there are literally hundreds of bargains out there. The price that homes are selling at are equal to 2002.
  • The inventory of homes on the market is still high. Though the number has come down compared to last year, it is still considered historically high, giving the home buyer plenty to choose from.
  • Home sellers (including banks) have come to realize that if they want to sell their property, not only will they need to price it aggressively, they need to give some concessions to the buyer. You can get pretty much ANY seller to pay your closing costs, and even prepay your mortgage insurance to reduce your monthly payment!
  • Banks and Mortgage companies have money to loan...still at historically low interest rates. (under 6% just a couple of weeks ago) And you do not have to have perfect credit! You do have to come up with 3% down, but this can come from a gift (from a relative, etc.) or your retirement account (401K, etc). There are several government programs that will also match your down payment, so you only have to come up with 1.5% down.

The local real estate stats show that the number of units sold during the last 3 months is about equal to last year, with the average price down from last year (single family) but up from the previous 3 month period this year.

The smart home buyers are going out and looking at potential properties, and jumping on the ones that meet their needs and budget. You could wait another year to see if prices will drop any further, but in the meantime you continue to pay rent and will not be reaping the tax benefits of home ownership.

Jim Armstrong