I haven't looked at any news yet today, but when I do I'm sure I'll hear SOMETHING about the housing market. It is part of almost every conversation. We had some friends over for dinner Saturday night and before the night was over, the topic turned to Real Estate. Last evening at the dinner table my 15 year old asked, "what is the real story about the financial crisis". So, when your teenager is asking about the financial crisis and it's not for a paper he has to write for one of his classes, you KNOW it is in mainstream conversation.
There are people out there who want to buy a house, but they are scared. They are scared that they will buy a house and loose all their money. We have been told that our house is an investment and some people have turned it into a commodity. Others think it MUST make a certain "rate of return" or it is a bad investment.
Yes, your house is an investment, but it is also a place for you to LIVE. You also have the responsibility to take care of it - to keep it maintained. You can also personalize it through painting, landscaping, changing fixtures, adding on, etc., and IT IS YOURS. The landlord can't raise your rent or kick you out. If you live in a neighborhood with restrictions, there may be some things you can't do to the outside of your structure or pile junk cars up in the yard. Some neighborhood restrictions are a little too restrictive for some, but basically these rules won't be hard to follow if you have PRIDE in your home and take care of it. So, you have a place to live, you can do what you want to it AND your home will increase in value so when you get ready to sell it, it will be worth more.
Let's face it. Recently, what happened in the real estate market was a bubble, not something permanent. Birmingham is not nearly as bad as the rest of the county - believe me -but we have lost value in some areas. This bubble was created by removing all barriers to owning real estate. Getting a mortgage became too easy because people COULD get a house without having ANY money. Interest rates were at historical lows and some lenders started offering "creative financing" so some people were buying more house than they could really afford. Because all of a sudden, anyone could by a house, there were more buyers than houses and prices went up (remember the old supply and demand). Appreciation skyrocketed in many markets. The rush to riches through real estate came to an end because bubbles eventually burst. Now we are left with a buyer's market, instead of a seller's.
From a financing perspective, we are back to the way it was 10 years ago. A person has to save money to buy a house and they have to have money in the bank for an emergency (like enough to make a payment or two if you loose your job). They need to show that they CAN pay back the mortgage company by having a good credit history. One advantage over 10 years ago is that rates are LOW, so your payment is less and if you get a fixed rate loan your loan payment will not go up (your taxes and insurance may, but not the repayment on your loan). Can you say that the rent you pay for your apartment will not go up???? Even though you hear the banks are not lending money, there is PLENTY of MONEY out there for you to buy a house.
And, assuming you don't try to sell your house right away, your house will be worth more when you DO sell it. A basic rule of thumb is if you take care of it, a house will appreciate 3% per year. There are costs associated with selling a home, just like buying a home and those costs tend to be about 9% of the salesprice. So keep it 3 years and you are going to "break even". After that you will make a profit. We saw prices shoot up in 2005-2007, so if you bought then, these rules don't apply, because the people who owned then made more than 3% per year, but over time prices will go UP. Now prices have come down and are where they should be - it is a good time to buy.
I saw some national statistics for housing appreciation on RISMEDIA:
1970-1979 = 142% appreciation
1980-1989 = 52% appreciation
1990-1999 = 45% appreciation
2000-2008 = 42% appreciation
Source: The National Association of Realtors
Birmingham prices are not as high as some other areas of the country so we are probably a little on the low side of those numbers, however, looking at that, we can say the 3% would be conservative. Conservative would be smart for the next few years.
What else can you buy, use it for 5 years and then sell it and make money: your car, your clothes, your TV, your cell phone?
Buying a Home is a smart choice for your money. If you would like to talk more about buying a home, let me know I'd be happy to help. Contact me at www.ToniBird.com.
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