Home ownership is still the "American Dream" and if you plan to stay in one place for at least a few years, there has never been a better time to buy. Although it is likely our dreams are more modest than in the past, the great majority of Americans would prefer to own their home rather than rent. "Owning a home" may also have a different definition that it did just a few short years ago. Maybe then, it meant we were making a mortgage payment rather than paying rent. Now it means we have finished making the mortgage payments. We have returned to some "old fashioned values" which would make our parents proud.
This change in perspective is the direct result of an economic cycle unlike anything most of us have experienced. Like a homeowner considering a sale, prospective purchasers have considerably more to weigh than in the past. Have home values truly passed the bottom or will another wave of foreclosures occur and take prices down substantially farther? Will legislation continue to limit inventory growth? Will interest rates stay low? Will the first time and move up buyer tax credits be extended beyond the end of April? Should I buy now or should I wait?
Many have been rewarded for staying on the sidelines over the last few years but at some point, the rearview mirror will show a missed opportunity. There is substantially more information available today than there was when this cycle began. Depending upon what community within the Metropolitan area a buyer is considering, prices are still as much as forty percent below their peak. Last year at this time many were fifty percent below their peak and the year before, sixty.
If inventory is well managed, which it is in the bank's best interest to do, the worst is behind us. We should not expect double digit appreciation but double digit decline is unlikely. Banks are becoming more adept at modifying loans for distressed borrowers. Their goal is to keep the borrower in the home; a payment coming in while the home's value improves. Borrowers are more motivated to stay the course in an improving market.
Strategic defaults will no longer be accepted by lenders and short sellers will no longer find lenders willing to forgive the deficit loan amount. We are already seeing lenders that foreclosed in 2007 begin to pursue the deficiency judgment recorded at foreclosure. Short sellers in that same time period who did not obtain a release of liability for their negative equity are now being sued in an effort to collect the deficiency. Many of these sellers were not aware that they still owed the money even though the bank released the lien. Their only choice now is to repay the debt or face bankruptcy. These collection efforts will discourage some from short selling and further limit inventory.
If your plans include a home purchase in the nearer term, you will be hard pressed to find better circumstances. The tax credits may or may not be extended. Interest rates probably will not get lower and will likely rise. Unless there is further catastrophe, prices will stay flat or increase slightly. You may, just may, purchase for slightly less. If you choose to wait however, odds are, that you will pay more each month.
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