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The Number 1 Reason to Buy a Home Now!

The number one reason to buy a home right now may surprise you. The number one reason to buy a home now is NOT that the first time home buyer tax credit or the repeat home buyer tax credit is ending this spring. However, both of those are good reasons to buy a home right away.

The number one reason to buy a home NOW is found in the following quote from last week--

"April 1 will be the first day that the Federal Reserve will end its debt purchase program and allow the struggling U.S. mortgage market to operate unassisted. As a result, the Fed believes mortgage rates will rise about three-quarters of a percent to about 6 percent," Boston Fed President Eric Rosengren said recently.

Here is the projected economic impact if you a buy a home in April or later according to the Fed-
· If you buy a $200,000 home with a FHA loan and put 3.50% down your monthly payment just increased by $93 a month or $1,120 a year! That's equal to eating out 4 times a month at Chili's and their 3 Courses for $20 Menu.

· Your monthly payment increase is 8.6%, this is equal to every home seller in the country raising their prices by 8.6%. Yuck!

· Finally, if your debt-to-income ratios are really tight your pre-approval for a home price of $200k, just got decreased to $182,800.

· Or if your pre-approval is good for a price of $175k, it just got decreased to $159,950.

· Or if your pre-approval is good for a price of $150k, it just got decreased to $137,100.

So, how do you avoid this from happening to you? First, you could hope or pray that the Fed will extend their purchases of mortgage bonds. Second, you could buy a home BEFORE the Fed's purchase plan expires on March 31st.

It's your choice. You have been warned.

Posted by Lonnie Glessner on 01/18/2010 05:39 PM

Comments (38)

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38 Comments on The Number 1 Reason to Buy a Home Now!

JAN

2010

Lonnie - It doesn't get any clearer than that. Plain talk that buyers of any type should understand. Excellent.

JAN

2010

Why will they be increasing rates at a time like this?

Well said. Emily one reason rates will go up is becauseof the out of control government spending

Rates will go up due to the discontinuation of MBS purchases by the Fed. The Fed is currently the primary purchaser of the secondary market. They will completely wean themselves off by the end of march. It remains to be seen how much of an apatite the secondary market has without the raising of rates. Morgan Stanley stated that rates would go to 7.5 or 8 by the end of 2010. I think that is outrageous, but who knows. We have been spoiled with 6% rates anyway, 7 and 8% are still historically low. My mother paid 18% back in the 70's, if she remembers correctly. It will be an interesting year!

I have heard others say that the rates will go up, but this was the first explanation of why other than just spouting inflation. Great post.

Interesting, and our rates up here in Canada most often follow your rates.

Thanks for the nice read. I liked it.

Patricia/Seacoast NH

Great Post Lonnie. So True.

Thanks for the informative post..I am reblogging this. Thanks,

Great post, great information for buyers. I'm reblogging it now.

I make the same case to my clients but the other way to look at it is that home prices will have to go down because as you show, rising interest rates will make homes less affordable. I'm never certain if it's better to lock in great rates or wait for a possible further decline in prices.

I recommend financing as much as possible with an FHA loan now because they are assumable. That was a huge thing back in the eighties. If rates go up and prices then decline, you will be able to sell your home for more because your assumable loan will keep your buyer's payment as low as they used to be.

Definitely something to keep in mind when buying a home.

Well said and thoroughly explained. Facts every consumer should know.

I have a feeling they will go up higher than 6%. After all, we have to remember that the Fed made this prediction....yes, the same Fed that said the "crisis was contained" before it even really began.

I've heard several estimates that put the government share of MBS purchases at around 80% and find it hard to believe that rates will only increase by one point if demand for mortgage backed securities drops by 80%. Which also leads me to the conclusion that the Fed will extend the program if rates start to shoot up too much. Hard to say which is the lesser of two evils at this point, but it will be interesting to see how the mortgage market "breathes" once it is removed from life support.

My lender partners have been warning me of a rate hike. Definitely worth a reblog.

Great post. I think people would be wise to heed your warning!! Thanks!

www.GarrigusRealEstate.com

I wonder too if mortgage rates will go higher than 6%, because who is going to buy 80% of the mortgage bonds that the Fed has been buying? I would not be surprised that Bernanke, Geithner, and others have been "twisting some arms" or will be to get banks to begin buying mortgage bonds. However, there is a problem with that. First, the Treasury needs the banks to be buying their Treasury bills and Treasury bonds too. The banks don't have enough money to buy Treasury securities, mortgage bonds, approve short sales, foreclose on homes, pay additional taxes or fees, and comply with all the new regulations.

Maybe consumers as investors might begin a lot more mortgage backed securities. But, I highly doubt that right now.

However, there is disagreement at the Fed over this policy and I would LOVE to be a fly on the wall next week at the Fed Meeting. We could see a quick reversal next week on this policy or come April as the Fed watches mortgage rates rise.

Lonnie - Nicely stated and laid out here. I like the fact that you used concrete examples to illustrate the difference with regard to qualification and pricing.

Hi Lonnie -- If this occurs, inventory levels should rise and sales prices should fall, generally speaking, knowing that each market and submarket is unique.

Thanks for excellent post - am going to re-blog. I also liked Tim's comment #13.

Lonnie, thanks for the wakeup call. this won't be an April Fools joke !

This is really important information for buyers to realize as they consider whether or not to purchase a home.

JAN

2010

This is awesome! So many people focus on the dollar amount up front rather than figure out that interest rates have more to do with anything. I agree completely. Thanks for the reminder.

Deb

Thanks for the MATH.... Its pretty irrefutable.

Yes, the Federal Reserve has been buying the mortgage backed securities, because NO ONE ELSE WANTS THEM at these discounted rates. So, if the fed stops buying, who will and at what rate?

It almost seems there is a decoupling of the fed rate banks charge (presently zero) to banks, and the rates banks charge, and now, what rate is "saleable". we'll see. Yes, the rates have been held artificially low and bound to rise to be attractive to investors.

But, if you look at a home as a LONG term investment, and a PLACE TO LIVE, with the tax incentives awarded to home ownership. the primary question, what will the home cost at 5.5% interest over the next 20 or 30 years...and what will it cost at 8%. I believe the math on this will far outway any additional 3 or 5 or even 10% savings on the PRICE, that might occur.

NOW..the case shilling home price index of 20 cities did turn up last august, ...with a little follow through in sept and october....Nar is predicting 4--5% price increases through 2010.....Wall Street says the recession is over...and recovery is creeeping forward. HISTORICALLY, Debt is repaid with cheap inflationary dollars.

IF YOU (or banks) have a debt created today of 100,000 and in 2 years with 6% inflation we pay 100k back with real dollars worth only 92k in buying in real buying power.

here it is folks, we've been through a wave of deflation (a product of a recession), and its just a matter of time before we inflate (see the government printing dollars to pay this trillion dollar debt), inflation is our next enemy.

okay..econ 101..but for heaven sake, markets are fluid and cyclical.

its all more complicated than that...but the best time to buy a home, is when your family needs a place to live and you have the long term vision, planning, job and finances to do so...

Rates have already started to rise a bit. I have buyers right now that are disapointed each week when rates go up another 1/8 of a percent. None of us have a crystal ball but your comments make a lot of sense.

Very good reason to buy now...but the real number one reason is that you need a house now. Now is always the right time when it's the right time for you.

We need to remember that unless your an investor you are selling a home vs. a house. When we use this mind set it is always a great time to buy a home. Yes, it may be a great time to buy a house.

Excellent article, thanks for sharing

You are so right. It's all about affordability. There's a lot of emphasis on price, but I always give interest scenarios at various levels to show what will happen to try to reinforce the importance of "sooner than later". The time to pay for the low rates is coming.

Lonnie,

Great post, This is something we all need to consider when advising people who want to wait until later in the year to sell. As we all know, people don't buy homes based on price, but on monthly payment.

Sure the math is correct but prices are still dropping in my area. Foreclosures are still hitting the market at a record pace and unemployment is still god awful (U6 near 20%!). The tax credit expires in spring which has obviously been fueling our market given the numbers in Oct and Nov. Still got all those upside down folks who are contemplating walking away.

In other words I have no problem waiting till next winter. The lower the prices the go the bigger my downpayment gets %wise. Heck, I might even be able to pull off a 15 year mortgage.

JAN

2010

Great information to pass onto buyers - thanks for the heads up!

Leigh, you're absolutely right. I know that Zillow isn't the best indicator of homes, but the 30 day price changes in most of the homes in my area show -20,000 + !!! I'm saving $20 grand a month by renting.

I'll take higher rates. That'll just cause prices to drop even more. I'm an all cash buyer anyways.

Mike, I like Zillow in that I compare it to itself if you know what I mean, ie watchin individual homes. Have you ever tried Cyberhomes.com?

Portland area is still way over priced, IMHO. I make very good money yet still can't afford a decent home?!?!?! Portland didn't have a big subprime market but the Alt-A's, oh, boy! I guess you'd call it the second wave in some areas but we seem to have a slow building first wave here. And our unemployment is some of the worse in the nation. High tech was a big draw but now we aren't even listed in the top ten cities for high tech:O( I love the beautiful NW, plan to stay, and look forward to reasonable home prices. It got crazy here and wouldn't mind if Portland lost some of it's 'cool and hip' reputation.

Good luck with your home shopping experience. Patience.:O)

JAN

2010

Thanks for this information. Going to re-blog for all my future clients!

JAN

2010

Good way to put it Lonnie. I find it a little amusing how so many of the comments are addressing it like you are talking about interest rates ... that's just another thing to add to it. Rates will rise, should rise and should already have risen. How high they will rise and how quickly we do not know but Wise always was more correct than Keynes and we all are certain it will be plaid out in the wallets and bank accounts of Americans quite vividly over the next several months.

One commenter said his mother believes she remembers having an 18% interest rate - yes, that was very possible in the late 70s and early 80s. Could we see them that high again? It is possible. While most of us agree the government should step out of the way and let the market drive the economy they have done such a fantastic job of training the public to trust them and using fear to leverage their Keynesian policies of socialized economics that it will likely take a complete implosion of the market and runaway inflation to open the eyes of the uneducated, untrained masses.

You have done a good thing here - do more of it. Everyone needs to understand the simple math.

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Lonnie Glessner

Littleton, CO

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America's Mortgage LLC

Address: 6534 S. Broadway, Littleton, CO, 80121

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