real estate
'Timing' market a risk for first-time buyers

The buyer of a $400,000 home who put 10 percent down and had a $360,000 mortgage at 6 percent would make monthly payments of principal and interest of $2,158. Add in $600 a month for taxes and insurance and the monthly payment would be $2,758. If an identical home were to rent at 5 percent of its value, the monthly rent would be only $1,666 ($400,000 x 0.05 divided by 12) -- a savings of $1,092 per month. A renter who invests that difference can come out ahead of the homeowner and, Killelea says, accumulate far more wealth by renting instead of buying real estate at unjustified price levels.

"The declines (in home prices) aren't enough to make me want to buy yet. My rent used to be about 2.5 percent of the cost of buying. It has gone up slightly for the first time in seven years but would have to be near the cost of owning (6 percent to 9 percent) for me to buy," says Killelea.

You can make your own calculations simply by measuring the total cost (including principal, interest, insurance, taxes and maintenance) of buying a home against the cost of renting a similar-sized home. If the two numbers are within 10 percent to 20 percent of each other, it may be worth buying, but in a market where renting is three times cheaper than owning, Killelea says it's a no-brainer.

Yun says buyers should focus less on timing the housing market and more on determining the right time for them to buy a house. People not ready financially or mentally or who may be moving in the short term shouldn't buy a home just because market conditions are good, Yun says. He says it is still a good time for homeowners with a long-term view, whether or not there are further price declines.

"For people that have the financial capacity, the conditions are right. There are still historically low mortgage rates and plenty of homes to choose from. I would say buyers should still talk to sellers to negotiate lower prices because now is a great opportunity to do that," says Yun. In soft markets, buyers are often encouraged to start making offers at least 10 percent less than the asking price.

On a $250,000 home, that's a $25,000 discount, which could more than make up for any further price declines the market may experience, says McAfee, who recommends that homeowners who are on the fence and think prices may fall further should just make a lower offer.

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"If you don't think that's the best deal you can get, just make an offer. You're probably better off making the offer than sitting around waiting for the price to fall," says McAfee.

Consider the purchase of a $250,000 home with a 20 percent down payment -- $50,000 down and a $200,000 mortgage. A 30-year fixed rate mortgage at 6 percent interest would mean monthly payments of $1,199.

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