A great time to buy? That depends...
Recently, there seems to be more and more people saying "it's a great time to buy". To someone who makes their living helping people buy and sell homes, this is certainly more encouraging than the seemingly endless reports of gloom and doom we've been hearing for so long. If the last few years have taught me anything, it would be just how important perception is and how it can and does drive markets. While there are advantages to buying in the current market, the advantages may be things you haven't considered.
The most common thing I hear lately about the benefits of buying now is price and, more specifically, the current prices in relation to prices a few years ago. On the surface this would seem like a very convincing argument. In my local market (northern Illinois) we've seen prices adjust downward approximately 30%. Homes are much more affordable now than they were in 2007.
Where are prices headed?
In late 2008 I ended up selling an investment property I had owned for several years. I did so not because it was a good time to sell but rather, to get out from under all the bills that had piled up that year as a result of the declining market and my declining sales. I had planned to hold this property long term and was very reluctant to part with it, as I felt a stronger market was just around the corner. How wrong I was! This turned out to be a blessing in disguise. I can see now that, had I not sold this property when I did, it would have cost me between $30,000- $40,000! Timing is everything. My point is that it can be very difficult to predict what will happen with home prices, even for someone who does it for a living. Will prices drop further? That's a question with no simple answer. Based strictly on what has occured in the market in the past few years, it would seem that prices have nowhere to go but up. If only things were that simple. A bit more research into the economy overall would suggest that it's possible that prices could decline a bit further. Time will tell.
Why would anyone want to buy now if prices may see a further adjustment downward?
The answer to this question, financially speaking, is fairly simple. Interest rates. Looking at home buying from an affordability standpoint, it's easy to see how one can benefit from buying now versus waiting to see where prices go. For example, a home purchased now for $100,000 with the current interest rates ( less than 4%) will have a lower monthly payment than a home purchased for $90,000 or even $80,000 when rates return to what most would consider "normal". One thing that no one will argue with is that rates will rise. Using this example, even if homes dropped another 20% in value, you'd still be ahead long term.
A long term plan:
Now more than ever, the decision to finally buy that home should be looked at as a long term investment. Years ago, it was pretty simple to buy a home and expect that it would rise in value quickly, allowing the owner to sell after just a couple of years without digging into their pocket to break even. In many cases, you could even make money doing this. At some point, a strong market may again make this possible but, we're not there yet. For someone who doesn't have strong job security or who faces a possible transfer in the next couple years, not being financially tied to a home would be an advantage.
As a Realtor, I tend to focus on the numbers and whether things make sense financially. The fact is, that for most people, the decision to own their own home tends to also involve emotion. Having a place that is theirs, a place they can take pride in and make changes to that will bring them and their family years of enjoyment and memories are the intangibles you can't simply affix a number to.
The bottom line is, if you've always wanted to own your own home and plan to be in one place for more than a couple of years, there are definitely advantages to the current market. Long term, real estate has always performed well and I don't think that's likely to change.
