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Dear Steve,
Everyone's saying that now is a good time to purchase a home. My wife and I would like your opinion.
-- Doug W.
Is now the time to get into the housing market -- or should I continue to wait?
-- Jason
With interest rates falling, is it time to buy a home?
-- S. Weil
Dear all of the above and others,
Yes, it's a good time to buy in many places -- with a few asterisks attached. It's just not a very good
time to sell a home. So if the "sell" part of the equation doesn't apply to you, that might tip the balance
in favor of buying -- or in some markets, pouncing.
The "X" factor, of course, is no
one knows how long these rampant value drops will
persist. Thus far in this moribund part of the
real estate cycle, the pessimists are still the
ones rightfully saying, "I told ya' so."
There are always a few base considerations you should ponder that, to a degree, supersede
market conditions. For instance, will your career benefit from the mobility you now have as a current renter?
Don't forget that job changes and transfers are more numerous in this quasi-recessionary economy.
Also, do you plan to stay put in the house for awhile? Historically, odds are pretty good that
prices will rise again (someday) and the 2 percent to 3 percent you pay in fees will be less of an issue as
the years go by. A rule of thumb: Buying is better than renting after five years if annual price appreciation
is 4 percent, 10 years if it is 3 percent.
The positives of home ownership still include deductible mortgage interest, deductible property
taxes and the potential tax-free capital gain when you sell, plus that personal satisfaction of ownership. Plus,
as you probably know, there's lots of room for haggling at present. The negatives of ownership are less flexibility
and very real uncertainties about dropping values.
There are still plenty of caution flags. Median home prices are down about 4 percent from a year
ago -- much more in some markets -- and the approximate 10-month supply of existing for-sale homes is more than
twice what is was at the peak of the boom three or so years ago. Carefully researching the home-price sales in
your desired neighborhood will at least give you some idea if value drops are still on a slippery slope there.
If declines have been continuous
and steep over recent months, you may be better
off looking elsewhere. A home that has a markedly
lower price now than it had in late 2004 or early
2005 at the market peak is more likely to be closer
to its lowest devaluation point than those that
haven't. All that said, I think it is a mistake
to try to time the market. No one can really say
for a fact when values will head north again.
Rental deals in some soft markets can be pretty sweet. And renting may be a good hedge against
further value drops, as this recent note from a Bankrate reader indicates: "In the last year that I've decided to
rent, I've been paying $2,500 to rent a house that was bought for $600,000 in 2006. Neighborhood comparables are
now about $400,000 with no signs of stabilization. So in addition to saving thousands this year by paying lower
rent instead of the higher mortgage, I saved $200,000 and earned several additional thousand from the CD where I
put the down payment money ..."
Figure out whether it's best to rent or buy by using this
calculator.
A tip if you do buy: Put 20 percent down if at all possible to avoid private mortgage insurance, or PMI, and higher interest rates due to growing lender risk-based concerns.
Remember, every "buy" decision is a risk.
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