I recently posted about why right now is a great time to buy your first home and then I found an article in the Wall Street Journal on the same topic. The article weighs the pros and cons of the current housing market, but I think it really reiterates well that it is in fact a great time to be buying your first home. I’m sharing a portion of the article below or you can read the full article here.
It's been a scary few years for the housing market. But at some point, the nightmare has to end (please?). Is now the time? Should first-time home buyers consider jumping into the market?
After all, home prices have fallen 34% from their 2006 peak and mortgage rates are hovering at or near record lows.
On one side are those who argue that homes are more affordable than they have been in decades, based on how much monthly income a mortgage consumes and whether owning is less costly than renting.
An uptick in home buying by investors already is under way, they say—an indication that those who wait may miss out on a good buying opportunity.
On the other side, pessimists insist that the housing slump is far from over, and that prices will continue falling—perhaps as much as 20% or more.
Excess inventories, they say, are the problem, and some estimate it could be four years before the market absorbs all of that extra supply.
Eric Lascelles, the chief economist at money-management firm RBC Global Asset Management Inc., says this is a remarkable time to be a first-time home buyer.
This could be the best time in a generation to be a first-time home buyer.
Cheery views such as this are out of vogue and easy enough to dismiss as the ravings of a serial optimist. And yet this opinion isn't based on any heroic economic assumptions. To the contrary, it is constructed upon a more curmudgeonly foundation: In my estimation, the stock probably underestimates Europe's woes, U.S. economic growth may fall short of expectations, and—of greatest relevance—the overall housing market is likely still several years from normality.
Nevertheless, this is still a remarkable time to be a first-time home buyer. Affordability is the best it has been in 30 years, thanks to the combination of a 34% decline in prices since the 2006 peak and a historically low 4% average rate for a 30-year, fixed-rate mortgage.
The two affordability metrics that truly matter are how much monthly income a mortgage consumes, and whether this is less costly than renting. On the first count, I calculate that home prices are now an astonishing one-third cheaper than the historical norm. On the second, real-estate website Trulia figures that buying is cheaper than renting in 98 out of America's 100 major markets. That is practically a clean sweep.
Here's a dirty little secret about recessions: They aren't bad for everyone. They can even be downright beneficial if played right. Roughly one in 30 Americans is unemployed as a result of the financial crisis. The rest have sidestepped this blow, and what's more have been given the gift of extraordinarily low interest rates.
The finances of most households have had a rough go over the past several years. Many were ravaged by financial markets. Others are trapped beneath an illiquid and possibly underwater home.
However, the situation for first-time home buyers is different. They largely skated through the past few years. They weren't yet in the housing market, and so escaped that devastating hit. And with an average age of 30, they hadn't yet accumulated sufficient assets to truly suffer when markets fell.
But is it wise to take the plunge in this era of economic uncertainty? While the economy remains very fragile, it has become less so since the fall. Still, say the worst happens—you buy a home and then immediately lose your job: The foreclosure backlog provides breathing room, and there is ample evidence that the newly unemployed are regarded preferentially by employers over the poor souls in long-term unemployment purgatory.
Could home prices fall further? Yes they could. The home-inventory overhang is still quite large and credit availability remains poor. Home prices are unlikely to bloom in earnest for quite some time. But inventories are finally shrinking and mortgage availability has at least stabilized, and if you wind up buying a house on sale for one-third off its fair value instead of discounted by 40%, you still got one heck of a deal.
Arguably, the bigger risk is rising interest rates, which could erode affordability and snuff out this buying opportunity.
What if you are presently unemployed, or a grim-faced banker has rejected your mortgage application? Alas, your decision has been made for you. But for viable first-time home buyers—those with a stable job and a preapproved mortgage—this opportunity is ripe for the picking. Investors are already eating your lunch.
For anyone looking to buy their first home or move up, market conditions make it a great time to buy a home. Right now there are some great homes on the market in our area and interest rates are at near historic low levels. Call me at 678-478-2424 today to see how I can help you make that dream come true!
Read more of John Morris's posts on Smyrna-Vinings Patch: