Should we still be waiting to buy or sell real estate right now?
We don't know what is going to happen to the housing market or the overall economy over the next couple of years, we really don't even know what's going to happen over the next six months. Neither do the 'experts'. Should we try to figure out what might happen in the near or distant future in the housing market and time our purchase or sale for getting the absolute lowest price on our purchase, and sell when the market is at or near the top? That sounds ideal to me, but.... Will we be using the same theories, models, and calculations the experts have been using to time this transaction? Should we just go with our gut feelings? When contemplating any real estate transaction due diligence is always required, but don't let caution lead to inaction. So, what do we do here? How do we figure this out? Where do we start?
Let's start with what we know. We know that the price of real estate in almost every market in the U.S. has nosedived over the past several years. We know that in many markets over the last six to twelve months prices seem to have stabilized and indeed have shown some upward trend in prices. We know that interest rates are phenomenal, near historic lows. Two years ago they were at historic lows. Several years ago we could get a home mortgage with 5 or 10% down. At one time we could get a mortgage with no money down,poor credit, and in some cases no proof of income. Most lenders now require 20 to 25% down, excellent credit, and the financial equivalent of the Inquisition. We know that we can currently get an FHA loan with only 3.5% down. We know that the government (FHA) wants to reduce its exposure to the mortgage market and already has increased some fees in the program, and there is also talk of increasing the 3.5% down payment requirement. We know that the price of rent is going up, ad in some metropolitan markets it is cheaper to buy than rent. This is good news for investors, but bad news for renters trying to time their purchase.
What is it that we don't know? We don't really know exactly what is going to happen to the price of real estate, we only know where it is now, where it's been, and what the current trend is. We don't know what is going to happen to mortgage interest rates or terms, we do know that we've had historically low rates and they've gone up from there, we could get a loan with zero down and lousy credit. We don't know if we are going to need even more than 20 to 25% down or even better credit scores in the near future. We don't know if FHA is going to raise down payment requirements to a level comparable to private lenders, or if FHA will be around at all. We don't know how much higher rents will go, but unlike a fixed rate mortgage, we know rents can go up forever.
Even if we could time our purchase at the botom of the market, will our credit be good enough, interest rates too high? Will selling our home at the top of the market keep us from being able to put enough money down on our next home, which has also increased in price? To make it even worse, nobody rings a bell at the top or bottom of the market.
We have low home prices, low interest rates, and FHA programs for all buyers that allows for a small down payment and lower credit scores. And lots of inventory.
Be cautious, but it's time to move.
Thanks,
Roger
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