Sunday, June 28, 2020
Is Now a Good Time to Buy a House?
These are unusual times and many people are wondering if it is a good time to buy a house. Quite a few have dropped out of the market because of the economic uncertainty or the economic certainty of having their job or business shut down by government edict. Some are just too frightened to come out from under their covers. What I have to say here may be a little controversial, but realtors are a lot like economists in this sense: if you took all of them in the country and laid them end to end, they still would not reach a conclusion.
What's Happening to Sellers?
Many of the lookie-loos and mildly motivated have dropped out of the market, either for fear of the kung flu or, perhaps, better screening by real estate agents. People are not exactly breaking down the seller's doors for a chance to look at their properties even with, or perhaps because of, the increasing use of video tours. Sellers looking to cash out their homes are taking a more realistic look at the values after weeks of inactivity.
Here in Pinellas County FL when I get a notice of new listings, it comes along with a list of price reductions. These price cuts amount to about half of the new listings. This morning I received a message with 48 new listings and 27 price reductions. They aren't always big price cuts, but the action is designed to get the house more attention.
Many sellers are ready to bargain and hungry agents are ready to help them get the place sold,
Who Is Buying and What Are They Looking For?
According to a recent report about a quarter (27%) of homeowners would consider a move during the kung flu panic if their circumstances warranted it. While it may seem high, the changes brought about by being stuck at home have caused some to reconsider their ideal configuration.
Perhaps it is a sign that not all is gloom and doom on the economic front that searches for new home construction have increased by almost 75% over last year. Many are looking to move away from the open concept designs that have been popular in recent years. With more people working from home, a trend that doesn't look like it will go away after the panic, a little privacy seems more desirable. Having a way to remove yourself from the noise and commotion of family life is now looked on a good thing,
There are also the usual considerations like changes in family size and financial resources. Some have found the lockdown and increased spending in certain areas to be a windfall and, unfortunately, some have seen their income evaporate along with their freedom.
With efforts by the Federal Reserve to keep interest rates low and banksters eager to make loans – in spite of their underwriters - this may be a great time to look for financing before things open up very much and those with the resources come back to the market with a vengeance. We have to keep in mind the Fed's fetish for fighting inflation by raising interest rates when things get going well.
When you are buying a home to live in for an extended time period, usually payments are the primary consideration. To put this into perspective, if you buy a house now with an extremely low-interest rate, you may still be better off than if you can get it a little cheaper after a rate increase. This type of thing happens at times when payments are too high and sellers lower prices to accommodate increased borrowing costs. Or you could pay a higher price with a higher interest rate, The future's not ours to see,
What Will Happen to the Home Prices?
Here is where I polished my crystal ball to get a clearer picture – it still appears cloudy. We have to be careful of any prognosticator that may have an interest in a self-fulfilling prediction. Hence we can't really turn to the political class to tell us what to expect. Some want to see the economy booming with people having money in their pockets to live the American dream and other pols think they will benefit from a crashing economy causing people to turn to them for solutions.
It's hard to say what is going to happen, it may depend on which dog we feed the most. I tend to have confidence that we will see things straighten out, but I have no idea of the time table. There are some things to keep in mind -people will always need a place to live and dips in housing prices are usually temporary pauses in the general upward trend. If you are an investor, there is another trend to consider: if fewer people can qualify for a home loan, they become renters. During these periods rents generally rise because of the increased demand.
That said, there are the local conditions to take into account. If you are in an area with a net loss of population, it may be a little longer before prices stabilize. That is some of the northeast high cost of living and high tax states are seeing an outflow of people who realize that they can live better and cheaper in warmer climates. Then there are the areas where people come to. This will provide better support for housing prices.
So, What Do You Do?
A lot depends on your plans. If you are not looking to stay very long, you may want to make other arrangements, as short-term buying may not be a good decision. However, if your plans are to make the place your home for a longer time, temporary fluctuations shouldn't be too much of an issue. Like I said, the general trend is upward.
The thing one has to keep in mind, if you believe we will come back, you may well be in better shape buying now. The lower price and lower interest could well leave you in a comfortable position, even if the prices drop a little more. If you wait until the economy rebounds and the Fed decides to put the brakes on by raising interest, the place could end up costing a good bit more,
Sealing the Deal
If you are looking to buy now, you can go with the low down payment FHA loan with about 3%. If you've saved up some more and are looking for a conventional loan, you can get away with 10%. But, for this privilege, the bank will insist on Private Mortgage Insurance (PMI). This extra fee will continue until you pay the note down to the point where you have 20% equity.
Something I did a while back and some lenders will do today is set up a thirty-year note for 80% of the price and a shorter-term second mortgage for 10%. What this gave me was a monthly payment similar to the 90% loan with PMI. The difference is that the extra payment actually reduces your amount owed and eventually goes away rather than paying for the insurance that keeps the banksters happy,
So there is not an easy, one size fits all answer to this question. I hope I've given you a few more things to chew on than you get from the talking heads on TV.