18th January 2008
Conventional wisdom says that this is an awful time to buy a new home. The housing market is in a funk. Mortgage companies have tightened their guidelines and homes are sitting on the market for months without selling. If you listen to the news it's all doom and gloom with talk of recession and inflation, and questions of how long it will be before we see a recovery. So who would be crazy enough to buy a home now?
There is a famous quote by noted investor Baron Von Rothschild - the time to buy is when there is blood in the streets. Here in Illinois the market isn't as bad as it is in other parts of the country, but if you are a seller sitting in a home that won't sell, the situation is grim. But the bad news for the seller is great news if you are looking to buy a home. Here are some reasons to buy a home here in the Chicago area, now:
Selection - There are homes in the market in all areas and all price ranges. With more houses on the market you can pick and choose and find the home you want. It wasn't so long ago that buyers were jumping on new listings as they came onto the market, even if the home wasn't exactly what they were looking for. You can pick and choose, now.
It's a buyer's market - Again, the best time to buy is when most people want to sell. If you buy now you can get a lot more house for your money, and you have a lot more negotiating power.
Interest rates are low - Mortgage interest rates are at their lowest point in the last several years. This means your mortgage payment takes you a lot farther than it did before. We're not that far off of the all time lows we hit several years back. It is smart to take advantage of the low mortgage rates while they are still available.
Great financing is available - There's a lot of talk about how the problems in the mortgage market have made it harder for borrowers to get financing. Some programs have been cut out, and guidelines are tougher than they were before. But there is still a lot of mortgage money available, including options for low or no money down, and some great programs for first time home buyers. If you are a first time home buyer in Chicago, you may qualify for the City of Chicago Bond Program which offers a below market interest rate and a grant to cover your down payment and closing costs. There are other programs for home buyers in other areas of Illinois with great rates and low fees.
Tax savings - Buying a home is one of the best ways to save money on taxes. Your mortgage interest, real estate taxes and in many cases mortgage insurance are all tax deductible. If you are a first time home buyer this means that after-tax, you can pay a lot more for a mortgage payment than you pay for rent.
Appreciation - This might not seem like the best reason to buy, with prices stagnating and falling in some areas, but in the long run, home prices always move up. There is a lot of pessimism in the real estate market today, but even the most pessimistic are bullish in the long run.
Equity build up - As you pay down your mortgage you build up equity in your home. Most people don't even think of this because it is so gradual, but every mortgage payment (as long as it is an amortizing loan) pays a little less interest and a little more principal. In a way owning a home is a form of forced savings.
Tax refunds are coming out - If you wanted to buy but were short of cash, your tax refund could be just what you need for the down payment and closing costs.
Rents are rising - Buying a home means you can fix your mortgage payment, at least the principal and interest portion. Rents are projected to rise this year and over time.
Those are the hard financial reasons for buying a home now, but there are other good reasons to buy now:
You need more room - Has your family has grown, and you are bursting at the seams? You need a new place to put all your stuff? If you have needs that you've been putting off, this could be the right time to buy and take advantage of the buyers market.
Control - If you own your home, you can do what you want to with it. Have a dog? Not a problem. Want to plant a garden? Go for it. Want to paint stripes on the walls? Paint your heart out, it's your home and you are in control.
Pride of ownership - There is a big difference between renting a place and having a home of your own.
It's the American Dream - Not only that, but buying a new home gives you a reason to throw a house warming party.
These are some reasons for buying now, but buying isn't the right course for everyone. Buying a home is a long-term investment. If you can't afford to hold on for the long run, you might be better off renting