Benefits of buying a home in a cooling market
A home is still a good investment, if you plan on staying awhile
Residential real estate, a shining star of the national economy that seemed unflappable just a couple of years ago hit a speed bump. That’s putting it mildly.
Nationally, home price appreciation slowed down drastically from the rapid pace experienced by many markets for a few years. Is this any time to be thinking about investing in a home? Of course it is-if you're buying it for a place to live, not as a speculative investment, and can afford to take the leap.
"Owning a home is still financially not a bad deal, as long as you have the income to support the cost of homeownership," said Jim Gaines, research economist for the Real Estate Center at Texas A&M University
Investors who hope to profit quickly on home sales, known as property flippers, for the most part have come and gone from the market, said Raymond Sierka Jr., vice president and regional sales manager with Harris Private Bank. At the height of the real estate boom, people would buy houses before they were built at preconstruction rates only to sell the homes for a profit a short time later, often before construction was even complete. Speculators in some markets could often sell the property for a 20% to 30% yield, he said.
People now are "buying for the right reasons," said Diana Bull, real estate agent in Santa Barbara , CA
More selection
In a growing number of local markets, buyers have more time to think about a home before they make a decision on whether to purchase it. Last year, that often wasn't a likely luxury.
"Once you as a potential buyer found a house that met your needs, you had to jump on it right away," said Frank Nothaft, chief economist for Freddie Mac. "One thing that we're seeing nowadays-compared to six or 12 months ago-is many markets where homes are staying on the market longer." That only seems to be true in Marin if the homes are overpriced listings. Good value sells quickly.
Two or three years ago, there was a great deal of reacting in the marketplace because we had a smaller inventory pool to work with. That's not to say that a well-priced property won't move quickly in this environment, he said, but buyers need to educate themselves so they can recognize a housing gem when they see it.
More room to negotiate
Current conditions in many markets also afford consumers a better opportunity to negotiate. Although the market is warming up it’s still a buyer’s market. This market is forcing everybody to slow down and take their time, In that time, buyers have more of a say at the bargaining table.
In fact, getting a fair deal is even more of a priority for homeowners who can no longer bank on high appreciation rates to save them if they pay too much.. If you slightly overpaid in a bidding war at the height of the real estate boom, high appreciation rates helped correct the error, he said. In many markets there is now no such safety net.
Even if you, as a buyer, have the benefit of being more of a haggler than you could have been last year, still remember to look for a place that meets your needs and your budget, Nothaft said. Do the calculations and lay the groundwork before your house hunt ever begins.
Interest rates are still historically low
It's easy to get caught up in the upward scooting of mortgage interest rates. But take the northward movement with a grain of salt. It will happen again but no one knows when. Some people act like "Chicken Little" and feel as if the sky is falling when interest rates go up a quarter of a point. Interest rates are still way below what they were five or six years ago, Gaines said. Even if the 30-year hits 7% by the end of the year, investors should keep in mind the double-digit rates of yesteryear.
The annual average for a 30-year fixed-rate mortgage was 16.63% in 1981, and worked its way down to 9.25% in 1991, according to Freddie Mac records. Homeowners may get rates as low as they ever will now. Relatively speaking, with housing prices and interest rates where they are now it's a great deal. Check your options.
Your home is still a good investment
If you're in it for the long haul-that is, buying a home with the intention to live in it for years-a home is still a great investment. Call Spencer at 415-690-0194 to find your perfect home and your best loan.
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