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Is now the time to buy?

By Polyana da Costa ·
Wednesday, December 21, 2011
Posted: 10 am ET

Is now the time to buy a home? Most prospective homebuyers think so, according to a recent study conducted by Gary V. Engelhardt, a professor at Syracuse University.

Despite high unemployment and slow economic growth, about 80 percent of Americans believe now is a good time to buy a home, shows the study, titled "The Great Recession and Attitudes Toward Homebuying."

"Positive sentiment towards homebuying is strong, particularly among young, educated, white and Hispanic households, and is attributable to low house prices and low mortgage interest rates," Engelhardt says. "In fact, the pattern of homebuying sentiment during the current recession looks very similar to that of past recessions. Homebuyer sentiment falls as the unemployment rate increases, and improves as job growth returns and housing becomes more affordable."

If buyers feel this is a good market to buy a home, why do home sales remain sluggish?

"There are a number of likely reasons for this," Engelhardt says.

First, sellers are expecting to sell their homes for what they were once worth at the height of the market, he says. (A quick advice to these sellers: it's time to face reality or take your home off the market.)

"Second, underwater homeowners cannot adjust their minimum sales prices much below the outstanding mortgage balance, because they would need to bring cash to the table at sale," he says. "And finally, with large declines in market values, sellers now hold a highly leveraged option that pays off with any future increase in prices."

Speaking of sellers, their sentiment about the housing market has changed dramatically in recent years, the study shows.

Unlike in previous recessions, sellers feel much more negative about the market than they did in past recessions, Englehardt says.

"From 1992 through 2005, positive homeselling sentiment fluctuated between 40 and 60 percent. Since 2005, sentiment has dropped precipitously, to around 7 percent currently, even while home-buying sentiment remains high," he adds.

Are you trying to buy or sell a home? What's your take on the current housing market?

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December 27, 2011 at 4:23 pm

I partially agree with upgrade, provided your loss outweighs the gain on the purchase side on a percentage basis. Otherwise, you're locking your "book loss" to a "realized loss". Going from a starter home at $150-$200 to an upgrade home in the $300-$400 range may sound good provided the percent difference in your loss is less than the next level.

If your starter home lost 15% but your buying into a house that has dropped 25% over the exact same time frame, then it is a good deal. If your house lost 25% but the next house lost only are creating a net worth loss.

You also need to factor in your staying time at the next level since home values are much like new cars these days. Home values will remain negative to flat based on currently market supply, unemployment rate, and still deflating housing bubble (hiss...and wait for China's bubble next). Be prepared to lose money in 5 years, including the broker selling fees at ~6%, and plan to stay longer to break even.

As for down payment, the credit tightening is too little-too late. A mandatory 10-20% should have been enacted years ago. Interest-only and 0%-down loans should have never been allowed in the marketplace to begin with. The markets where these toxic loans were created are the one with the greatest depreciation.

December 21, 2011 at 4:31 pm

It is definitly a buyer's market right now. If you are looking to upgrade this is the ideal time even though it may not seem like it. The current home you are in may not sell for what you originally paid for it but what you lose in equity in home #1 you will gain plus in home #2 (provided you do NOT sell #1 for less than you OWE.)

This is also an excellent time for first time home buyers! You are able right now to get alot of home for a phenomenal price and excellent interest rates. In the current market for most states, it is now becoming cheaper to buy a home than it is to rent. Plus the benefits of tax breaks and equity that are your's instead of your landlord's. However, the loophole, with the interest rate being as low as it is banks have tightened up on lending and you need a nice down payment 10-20% or near perfect credit. Don't get too discouraged though there are also some GREAT loan programs out there for first time buyers that require as little as 3% down, and a little higher interest rate. Check with your local banker for these programs! You won't regret looking into it.