Now is actually a great time to buy a house
Much has been made about the slumping housing market. Whether you believe the burst housing bubble caused the recent recession or was the result of it, you can’t deny how awful the market is. We read newspaper and magazine articles and hear television and radio reports about it almost daily. This is not good news for many homeowners, who have suffered drastic reductions in the value of their homes. But, if you are a buyer, the story is different. This may be the best time in years to purchase a home. Why? Well, let’s take closer look.
Home prices are low. According to a report from the property valuation website Zillow, home values fell 4.3% nationwide in the third quarter of 2010 compared to the third quarter of 2009. In the fourth quarter of 2010, home values nationwide fell another 2.6%. This was the 18th straight quarter in which the Zillow Home Value Index, which follows median home values in 440 metropolitan statistical areas across the country, declined. The median home value nationally now stands at $179,900, which is a 25 percent drop from the market’s peak in June, 2006, when the Index was at $239,765. Just to put that in perspective, during the worst years of the Great Depression, 1929-1933, there was a 25.9% drop in home values, Zillow said. The Palm Beach Post recently reported that property values in Palm Beach County declined 18.7% in 2009 compared to 2008. In December, 2010, 47% of the homes sold in Palm Beach County did so at a loss.
Financing is cheap. Interest rates on home mortgages are at their lowest levels in years. The Washington Post reported in November, 2010 that the average rate for a 30-year fixed loan had fallen to 4.17%, the lowest level since 1971. Rates have gone up a bit since then, but even now, Bankrate.com is reporting that the average rate for a 30-year fixed loan is 5.05%. Rates on 15-year fixed loans and 5-year ARMs are lower, averaging 4.30% and 3.61% respectively. The Federal Reserve Board’s recently announced plan to buy $600 billion of Treasuries could cause home loan rates to fall again. The primary purpose of this “qualitative easing” is to force down the yields of government bonds to stimulate investors to invest in corporate bonds and stocks. Since yields on government bonds serve as a benchmark for other debt, if the Fed’s plan is successful, it should drive mortgage rates down as well.
Home inventories are bulging. The slow economy and even slower housing market has left most neighborhoods brimming with homes. The average time on market for Palm Beach County listings is now 175 days. The longer houses stay on the market without selling, the more listings pile up. The absorption rate, that is, the time it will take to sell the inventory on the market at any given time, in Palm Beach County is probably in excess of two years. This frustrates sellers and forces them to reduce their price. Indeed, ZipRealty reports that 48.4% of listings in 26 major markets suffered price reductions in October, 2010. Given the high level of inventory in most markets, it is difficult to see the supply of housing falling in an amount sufficient to move prices upward any time soon.
Good help is not hard to find. Most of the real estate agents out there now are full-time professionals who are experienced and competent. The recession weeded out the part-timers and the incompetents who thought they could ride the housing bubble bandwagon to fame and fortune. Those who survived have been around the block a few times and know how to succeed in a bad market. Real estate professionals still working today are among the best in the business.
So, what does this all mean? Well, if you are a buyer, it means the planets have aligned. Home prices are low, financing is still relatively cheap, inventories are flush, and there is plenty of professional help out there for you. If you have the cash and can qualify for a loan, this is a great time to buy a house. If you are even thinking about buying, you should take the plunge soon. Many analysts believe the housing market is at or near bottom and will start at least a modest recovery sometime this year. Once that occurs, this perfect storm of low prices, low interest rates, and bulging inventories will start to abate and you will have lost one of the best investment opportunities to come along in many years. Consider it carefully. After all, ten years from now, you don’t want to be kicking yourself and saying “I should have bought in 2011.”