For those who have been waiting on the sidelines to watch real estate values decline to the bottom, should reconsider buying now vs. waiting for values to go down more. There are several reasons why one should really consider buying now besides low home prices and historical low interest rates. The Federal and CA State Tax Credit should be highly considered if you are a first time homebuyer. Also the unemployment rate should also be considered during this economic environment. Furthermore, the current economic environment with respect to liquidity and credit are very critical with terms and conditions of mortgages which affect the amount of qualified borrowers.
Here is a quick overview of the CA Real Estate Market since it hit its median peak in June and July of 2007. Since the peak of 2007, values have been decreasing 14 months straight consecutively year-over-year. Real Estate values have decreased by 54.9% from its median value of $665,000 in June and July of 2007. The year 2008 was the worst year in values declining with a total of 41.5% reported on January 2009 from January 2008. The high drop, around half, in median is due to price depreciation, the other half is due to the types of homes selling (i.e. short sales, bank owned) and how those homes were financed. The month of January 2009 was the lowest median since it was $220,000 in May 2001.
Of the existing homes that sold in January 2009, 60.4 percent had been foreclosed on in the prior 12 months. A year ago it was 29.6 percent.
The median sales price is supposed to go down another 6% this year. However, sales this year are expected to increase 12.5% to 445,000, "compared with the forecasted 395,600 units, or 12% growth, in 2008," according the CAR. Distressed sales are expected to peak in early 2009. This is a critical factor for stabilization in the median price, according to CAR President William Brown.
The Federal and California State Tax Credits were designed to stimulate the economy by offering incentives total of $18,000 to homebuyers to go out and purchase a home.
The Federal Government is giving $8,000 in tax credit for first time homebuyers. Under the American Recovery and Reinvestment Act (ARRA), the tax credit increased from its original tax credit of $7,500 under the Housing and Economic Recovery Act (HERA). The new tax credit will never have to be repaid unlike its successor. The same income limits of the $7,500 apply to the new tax credit. To qualify for this credit you must purchase after January 1, 2009 and before December 1, 2009.
The CA Tax Credit is a total of $10,000 but it is restricted to new home sales only. It is a credit and not a loan, which means it never has to be repaid or a portion due if you remain in your home for at least 2 years. It is a total of 5% of the purchase price capped out at $10,000. The beauty of this credit is that it is not limited to first time homebuyers. There is no maximum income limits to qualify for the credit. You must purchase between March 1, 2009 and March 1, 2010 to qualify for the tax credit.
The Federal Reserve Bank has committed to purchasing $500 billion in mortgage backed securities to help keep mortgage interest rates affordable to homeowners and buyers. This purchase agreement will expire at the end of summer. After, mortgage interest rates may increase as high as 7% on a 30 year fixed mortgage. Until then, borrowers have the opportunity borrowing money at historic low mortgage interest rates.
The Financial Industry has been beaten very bad last year with the fall of giants such as Bear Stearns, Lehman Brothers, Wachovia, Washington Mutual, and more. This has caused for the credit markets to tighten up making it difficult for borrowers to borrow despite the low costs in borrowing. Fannie Mae and Freddie Mac have become very restrictive and expensive to borrow. The market landscape continues to change more restrictively which causes for some borrowers not to qualify. For example, FHA financing has never been credit driven, but lenders have increased from a 580 FICO to 620 FICO to qualify for FHA financing.
Unfortunately, 10.1 percent of California's population is unemployed and may continue to rise as the recession worsens. The unemployment rate brings fear of uncertainty in the job market place. One day you may have your job and the next you may be filing a jobless claim.
Putting all of these factors into perspective, it makes it the perfect time to buy a home. Not only does it make it a perfect time, but it is a critical window of opportunity for those who fortunate to still have a job. Today's mortgage payments based on the median sales price of $220,000 of January of this year is less expensive than paying rent with other perks homeowners get with respect to tax deductions and equity.
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