Wednesday, September 29, 2010 11:17am
For any buyers still sitting on the fence thinking about buying a home, they should take into consideration the following three reasons why they should look into buying now. Sure there are plenty of doom and gloom reports out there about double dips, and why home prices may decline more in the near future. But, with record low rates, low home prices and plenty of inventory for buyers, history will show that there has never been a better time to buy a home than today.
1. A historical look at interest rates. Check out this mortgage rate chart for the past 40 years. We now currently have the lowest rates on record with well qualified buyers being able to get rates in the 4.25-4.5% range on a 30 year fixed. No matter how you slice this, current mortgage rates represent a historic opportunity that cannot be ignored.
So where will interest rates go from here? As discussed in my last newsletter, we have probably hit a bottom in the past two weeks in how low interest rates will go. But for now, rates should stay in the 4.25% to 4.5% range for well qualified borrowers for a few more months if not longer, but be careful, because the markets have been very volatile recently and it would not be such a major shock to see them spike up unexpectedly if the reports on the economy start to get a little rosier. In summary, if someone can qualify for a rate of 4.25% with minimal costs, they should grab it, lock it and run with it because it is an incredible interest to have on a mortgage for the next 30 years…just take a peek at the last 40 years for a historical perspective!
2. FHA confirms increase in buyers mortgage insurance payments on Oct 4th The FHA is set to increase mortgage insurance (MI) payments on October 4th on all NEW purchase loans. This new rule will mean a significant increase in a new buyers overall mortgage payment. For example it will increase payments over $118 a month on a $425k purchase. So even though interest rates are still at record lows, it will be the same as increasing someone’s interest rate by .5%. This is a significant increase in payment to most people, especially on today’s economic climate. In order to qualify for the lower MI, the FHA buyer will have their offer accepted on or before October 4th and have their FHA case # pulled on or before Oct 4th.
3. Real Estate is still the best long term investment to make. Even though real estate has become a questionable purchase for some people, especially if they bought a home after 2005, real estate as an investment still outperformed the stock markets considerably in the last decade, and has historically outperformed the stock markets and other investments for many decades before this. We must remind our buyers that Real estate is ultimately a home first and then an investment second. So, even though there may still be a decline of 5% in home prices in some markets still to come, when you factor in today’s historical low rates of 4.25% you will be able to see why purchasing a home today at 4.25% is still less costly overall than purchasing in a year with a rate of say 6%, even if you might be able to buy the home for 5% less in value. There is no doubt that there are going to be some tough headlines written about the housing market over the next several months that will probably create more apprehension and fear for our buyers. For example, the pending sales reports and existing sales reports that will cover September, October and November will be pretty bad, as the post hangover from the Homebuyer Tax Credit really kicks in. A recent survey from Fannie Mae said “A large majority of Americans (78%) still believe that home prices either will remain flat or go up the next year, and 70% of Americans think it is a good time to buy, 75% of Americans think interest rates will go up over the next year, and lastly Americans overwhelmingly believe that owning makes more sense than renting because of potential increases and value appreciation. I would say based on this positive data, the glass is more than half full for many Americans and how they feel about purchasing a home, coupled with the plenty of choices and inventory available out there for new buyers, I still think there has never been a better opportunity for someone to find their dream home and also make a great long term investment too.