I would always prefer to write answers to actual questions submitted by our readers, and in this case a perfect one for mid-January: QUESTION - Steve, I keep hearing you and others saying we should buy a home now, why? What's so key that we need to buy now instead of waiting until this summer?
ANSWER - I'd be happy to supply my thoughts in general, and yet I acknowledge up front that many of you have situations that are unique. Top 5 Reasons to BUY now!
- Interest Rates are not going to stay at or even just below 5% much longer. Even this morning as I took an early look at the mortgage bond markets and treasury bills, the credit markets are leaning back toward higher rates. (FNMA 30-year 4.5% $100.91 down 3bps or translated a slight move up in rate) The United States Government is borrowing billions of dollars ever week to pay for our current deficit spending, and as with any supply and demand market too much supply pushes down prices. In this case too much supply of debt instruments pushes down what investors are willing to pay and since prices and interest rates are inversely related, RATES go UP!
- One reason that rates have stayed in the low 5's (or even just under 5%) is that the Federal Government was paying a tax credit to first time real estate buyers. The original tax credit ran out in November, causing a lot of homes that would have been purchased in late November or December to be purchased instead in October and early November. An aberration in the demand therefore causing us to think real estate was recovering fast in the fall, when in actuality real estate is probably recovering slowly without market manipulations. In December due to the market manipulations, Existing home sales went down steeply. Back to the point, this means prices in January are softer than in the fall and many sellers motivated to get the deal done now!
- Here in Northwest Indiana the real estate market has been slowly but surely picking back up from the low point a year ago. We did not go as high as the coastal and resort markets, so we did not take as much time to rebound. If you are waiting for prices to go down further, you are probably waiting on something that won't happen. The steel mills have called back some employees, Ford Motor Company announced yesterday over 1,000 hires in Chicago and small businesses are slowly but surely dusting themselves off from the 2008 Recession. The real engine of job growth will be small business.
- January is typically slower, with weather being the dominant factor. Buying a home in a slow month will typically yield less competition and a more flexible seller. I would recommend working closely with the seller to gain assistance with closing costs (for the record every single title company in the region increased their closing costs on January 1st in response to more government requirements) and stay away from antagonistic battles with sellers. If you are willing to pay $100,000, contract for $100,000 ... don't use the home inspection as a second line of negotiations to beat the seller down even more. That's unethical and the REALTORs using that tactic aren't going to last as the market recovers.
- Many local communities are increasing rental registration fees, inspection fees, utility fees, storm water fees, and a whole host of fee income generation. Property taxes in the State of Indiana are capped at 1% for your owned home ... but 2% for a rental home. This means that your landlord is going to be hit with thousands of dollars in fees and higher taxes ... guess who pays those fees and taxes ... YOU! Your rent will most likely be increased at your next renewal. You may well be able to buy a home for the same or less than you will be paying at your next rent renewal. But due to the 4 above mentioned reasons, you better act now while prices are low, temperatures are cold, and rates are low.
Call me anytime if you need assistance in starting this process, a pre-qualification may be the first step: 219-465-8352