We are getting close to mid-year now, and if you are renting and considering making the big move to home ownership, you might be wondering where the market is headed. Are prices stabilizing? Are more distressed properties coming? And where are interest rates heading? All of these items should be of some concern to you as you consider and fret about making one of the biggest decisions in your life. Here’s some helpful guidance to go along with all the other thoughts, ideas, and considerations that are swirling around your brain regarding the market.
House pricing and interest rates are unpredictable. Right now, housing prices are very low by historical standards, but that doesn’t mean that they cannot go lower — and they might. This makes housing affordability pretty much the highest it has ever been. But will housing prices drop further and make homes even more affordable? Or will mortgage interest rates go up making homes less affordable? Or both? Or neither?
The truth is that no one knows. For every Harvard economist proclaiming prices are headed up, there is one Yale economist taking the opposite position. The same goes for interest rates, the supposed oncoming foreclosure glut, the economy, consumer sentiment, and so on and so forth. There are so many factors that impact these items that pinpointing the correct movements is impossible. Not to mention that the local market in your area could be vastly different from the one for the next county over. This means that as a potential buyer, you should make your decision based on the current market conditions and your own desire to own property,and not on some hoped-for price drop that may never come.
The housing affordability index is really the most important thing to review. It’s your personal affordability index that counts. Basically, the monthly cost of an average American’s housing payment (mortgage payment, taxes, insurance, HOA fees) is a lower percentage of their average income than it has been in years, but how is your affordability index looking? If you are in a good financing position with a solid job, have some money saved, and have a good credit profile, it may be your time to start the process of home ownership, or at least to get your search started.
So block out all the background noise in May 2012 and don’t listen to the experts on housing because they don’t know any better than you do where the market is really headed. Look at your own finances, life goals, investment strategies, and decide if your housing time is here.
If you are still hesitant, another item to note is that real estate wealth typically comes from long-term ownership and holding properties for decades. So just like with stocks and bonds, potential short term fluctuations in the value of your house the next few years should not be a big concern. What you should be concerned about is finding a great property that you love that you plan to own for the future. If you know that you're ready to own a home, keep in mind that it could easily take six months to a year to find a great property, so you should get moving on your search sooner rather thanlater.
Get out there and start looking, educating yourself, and preparing yourself for homeownership. Even if you are not going to buy for a few years, now is the time to start figuring out what the market has to offer in your pricing range and learn more about the benefits, costs, risks, and rewards of real estate ownership.