In December I suggested that it was a good time for young professionals to think about buying a home or a car. It was, and still is, very much a buyer’s market. (Assuming, of course, you have the cash and excellent credit available to qualify.)
But some disagreed with me, noting that property values will continue to decline. Fast forward two months, and mounting job losses has certainly added to the reasons not to make any big purchases this year. Still, are there reasons to buy your first home now? Perhaps.
Buyers Have Great Opportunities
If you’re in the market for a new home, and qualified (meaning you have cash saved for a 20% down payment and a credit score above 700), there are plenty of reasons to buy:
- Homes are affordable now
- There is high supply of homes new and old
- Mortgage rates are at historic lows
- Tax credits are available for first-time home buyers
Homes are affordable right now. According to the National Association of Realtors’ housing affordability index, U.S. homes were more affordable in December 2008 than at any time since 1970. That means that if you buy within your budget, you won’t be stretching every month just to make your mortgage payments
There’s high supply. We all know that foreclosures are up, but there are also thousands of people trying to sell their homes before they face foreclosure, as well as people who are moving and have been having a hard time selling. And, believe it or not, there is still new construction out there. Builders may be offering significant discounts on new homes so they can move their projects and pay the bills.
Mortgage rates are low. This week’s national average mortgage rate for a 15 year fixed rate mortgage is just 4.96%. Thirty year fixed rates are about a quarter percent higher. Considering people in our parents’ generation once faced mortgage rates of 10, even 15 percent, rates around 5 percent are pretty hard to ignore. Compare the latest mortgage rates.
Tax credits are available for first-time home buyers. If you buy your first home before July 1, 2009, you could be eligible for a federal tax credit of up to $7,500. Additional credits may become available as part of stimulus plans being approved by Congress.
Risks to Buying a Home Now
Despite all the positives, it is still a very uncertain, i.e., risky, time to buy a home. Why?
- Prices are still falling
- You may not stay in one place
- Your job may be at risk
Prices are still falling. According to some studies, including one by the PMI Group, half of America’s 50 largest cities have a high probability of having housing prices fall further by mid 2010. If you plan to stay in your home for 15 or 30 years, you’ll probably still see your asset appreciate, but if you only plan on staying five years or less, buying now is a gamble.
You may move sooner rather than later. The younger you are, the more likely you may not stay in the same city for the long-term. New job opportunities, relationships, or other interests may lead you away. If you think that’s the case, it’s best to stay renting.
You job could be next to go. The economy is taking its toll on all sorts of industries. Unless you are a federal employee or otherwise believe your job is 99% secure, you have to consider the possibility of being laid off in the next year. If you can’t stomach dealing with that possibility and a mortgage, better hold off on buying a home.
Adding Up the Pros and Cons
Is it a good time to buy a home? For some, yes. If you have the cash and credit required, feel secure with your income source, and plan on staying in your home for the long-haul, 2009 is the year to buy. If not, there’s a good chance that low home prices and good mortgage rates will stick around for a few years. Perhaps your time will come soon.
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