Wednesday, March 14, 2012

BUYING A HOME: As home prices fall further, is it time to buy?

Nobody wants to catch a falling knife. It is as simple as that. If potential buyers see continued home price erosion, they will stay parked on the sidelines. But as with everything else in this unique and historic housing market, perhaps the usual logic doesn't apply.
  • A "price reduced" sign is posted in front of a home in San Rafael, Calif.
    By Justin Sullivan, Getty Images file
    A "price reduced" sign is posted in front of a home in San Rafael, Calif.
By Justin Sullivan, Getty Images file
A "price reduced" sign is posted in front of a home in San Rafael, Calif.
"It wouldn't be an obvious mistake to buy a house now," hedged famed economist Robert Shiller, barely a few hours later.
Perhaps they were just jumping off legendary investorWarren Buffett's recent declaration that if he had a way to manage them, he would buy a couple of hundred thousand single family homes and rent them out.
Housing appears to be rated a "buy" these days, especially among investors, who see a ripe and rising rental market and big potential for income.
But is it the right time yet for what I call "organic" buyers to get in? By this, I mean people buying a home to actually live in it, raise a family in it, let the dog run around in the back yard. If prices are still falling, couldn't an even better deal be waiting down the road a bit?
No. House prices will continue to fall on a national basis at least through 2012, but you have to look past national headlines to your local market, which is likely already recovering nicely. The trouble with the national numbers is that they are heavily weighted toward the lower end of the market and to the distressed end of the market.
Around 73% of homes that sold in January were priced below $250,000, according to theNational Association of Realtors. Forty-seven percent of homes sold that same month were
considered "distressed," which is either a foreclosure or a short sale (where the lender allows the borrower to sell for less than the value of the mortgage). With all the activity in these areas, no surprise that prices skew lower.

National Mortgage Rates

30 yr fixed mtg3.89%
15 yr fixed mtg3.17%
5/1 ARM2.78%
$30K home equity loan5.90%
$30K HELOC4.60%
About these rates
The $250,000 to $500,000 price range may now be the sweet spot for the market. Sales in January were up in this price range, and if you have good credit, you are within GSE and FHA loan limits in most markets. While FHA just raised its insurance premiums, which may hurt much-needed first-time homebuyer demand, it is still one of the best loan products out there today, especially for those with lower down payments.
You cannot time housing any more than you can time the stock market. True, housing moves far more slowly, but that works to its benefit, as prices don't rise and fall on daily news or even on major events. Sales have clearly bottomed in housing, and prices always lag sales. They will lag longer this time around, no question, but they will come back.
Supply and demand will eventually win out, even after an historic crash. If you can't get a good mortgage now, then perhaps it's not your time, but if you can, waiting may not buy you much.

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