Is Now the Time to Buy?

I talk to a lot of people who are thinking about buying a home, but are not sure if now is the right time.  There is no easy answer for this.  Many factors enter into your decision to buy and everyone’s personal situation is different.  There is a lot of uncertainty in the economy.  Everyday we get mixed news about the economy and the housing market  which muddies the water.  But, by stepping back and looking at the big picture it can make your decisions easier.  If you are considering buying a home for the first time, trading up, or looking at real estate as an investment but not sure the time is right; this article is for you.

There are a lot of reasons to be in the market now; home prices are rising, mortgage rates are low for the time being, tax credits are available, and inventories are still moderately high providing a good selection of homes.  Everyone’s situation is different, but by looking at the macro factors such as prices, mortgage rates, incentives, and inventories and by discussing your personal concerns and situation with a Realtor like myself you can be sure you are making the best decisions for you and your family.

Keeping you In the Loop!

Median Home Prices

Median home prices have been steadily rising in Longmont since the economy’s crash in late 2008.  The low point in the market during this time came in December 2008 in which the median home price for that month was $179,000.00.  As we saw in last week’s market snapshot for January 2010, we have clawed our way back to a median home value of $232,000.00.  Although there may be a correction or dip in the future, we don’t expect it to be as severe as the one in 2008 and it will not likely happen until late 2010 when many of the incentives are gone and mortgage rates have gone up.

To the right is a chart from last week’s post.   I included it again because it is a great example of what our home market has been through in the last two years.  What this chart shows us is that in the year leading up to the crash at the end of 2008 the market was basically flat.  Then as we all know, the home bubble burst, the banks and economy collapsed and so did the availability of loans.  An overall panic mentality set it.  It is hard to convince yourself that you should buy a home when the headlines of the day all say we are headed toward the worst depression since the 1930’s.  No one was willing to buy a home when they had no idea where our economy was heading.  Even if they wanted to, getting a loan was very hard.    The timing of this couldn’t have been worse as the winter months of November through February are traditionally down months for the home market.  Combine those with a record number of defaults and short sales and you have a perfect storm on your hands.  Home prices fell through the floor.

Recent months have shown a steady increase in the median home value for Longmont and the overall trend line for the last two years has turned basically flat.  This indicates that we have returned to pre-recession price levels and are very close to becoming a stable market.  Some are predicting a double dip in home prices with a drop again later in the year, but few are predicting it will test the lows of 2008.  Banks are controlling the flow of foreclosure properties for sale so they don’t flood the market with cheap homes. The market is still a bit soft and offers don’t come that quickly for sellers, so they are more willing to deal on offers they get and not let them slip away.  However, waiting too long in a recovering market gives sellers more confidence and reduces their willingness to give you the deal of a lifetime.

Mortgage Rates

Interest rates for mortgages are currently low, and last week they dropped below 5% according to Freddie Mac.  This is not expected to last as there are clear signs that we are in an upward moving interest rate environment as the Federal Reserve stops their support of mortgage backed securities at the end of March.  A higher interest rate means a higher mortgage payment; which in turn leads to less house you can afford for the same payment.

According to Greg Grandchamp with Bank of America Home Loans in Broomfield, CO “During all of 2009, the Federal Reserve was propping up the bond market by buying up billions in mortgage backed securities (MBS), somewhat artificially keeping interest rates low.  And while the Fed decided to extend the time period in which they would continue buying MBS, they did not commit additional funds, but reduced the weekly purchase amount so the funds lasted into 2010.  The Fed will stop buying MBS entirely at the end of March.  This means that there will be significant mortgage paper on the market with little competition to buy – thus, driving rates higher.”

…in the long run, we expect 2010 to see higher rates

Just like with home prices there is always another side to the coin.  There is a chance that in the short term rates will remain low.  We all know that our economy depends on the global economy and there are signs that China may be trying to fend off inflation.  According to Greg, if China tightens their belts to stop inflation it “would be bad news for stocks and good news for bonds – and since bonds drive mortgage interest rates, that could be good news for mortgage rates as money flees the stock market and runs to bonds. But in the long run, we expect 2010 to see higher rates.”

With rates below 5% and an impending rate increase, buying now will help you get the most house for your money and in the long run will help protect one of your largest investments.  Contact Greg with your mortgage questions and let him help you find the home loan that fits your needs.

Tax Credits

As I discussed in previous posts there are tax credits available for those who are buying homes, but you must be under contract by April 30, 2010 which is approaching quickly!  There is an $8,000.00 tax credit for first-time home buyers and a $6,500.00 tax credit for existing move-up home buyers.  Although this offer was extended and modified in November 2009, it is unlikely that it will be again.  Similar to the cash-for-clunkers deal when this comes to an end in April it will be gone forever.  You will have missed out a large sum of money that in some cases can be monetized toward the downpayment on your home.  On a $225,000.00 home that is 3.5% of the home’s value, and is likely to be as much or more than a seller is willing to take off the price of their home.

If you are considering buying a home and qualify for one of the tax credits you do not want to miss out on this!  You must be under contract by April 30, 2010 and close before June 1, 2010.  Working with a realtor now to find your dream home will ensure that you are able to meet both deadlines.  Contact me to get started!

Inventory

Inventory refers to the number of homes for sale in your area.  In general a large inventory translates to lower prices, as inventories decrease the price increases.  It would follow then that inventories in Longmont are dropping while the median home prices are rising.  In April of 2008 there were an astonishing 701 active home listings in Longmont leading up to the market crash.  It is easy to see with that number why we fell so low in the following months.  Way too much supply and very little demand translated to a drop of almost $60,000.00 in 6 months when the economy collapsed.  Fast-forward to April of 2009 and there were only 491 active home listings in Longmont, a 30% decrease in the number of homes available for sale.  Again it is easy to see why prices have steadily gone up since then.  Inventories have recently stabilized around the 400 mark and there were 436 active home listings in January 2010.

These numbers are good for buyers because it means there is sufficient inventory to have a good choice of homes and it keeps the competition between sellers to make sure they are giving the best house for the money.   They must also work harder to set their home apart and incent buyers to choose their home.  Prices may have risen from the bottom, but with a lot of choice in the market, good deals and a lot of extras can still be found.  Working with a Realtor you can weed through all of the choices and negotiate the best price on your new dream home.  Contact me today and lets get started!