Now Is the Best Time To Buy A House

26 06 2011

If you want to buy a house but have been waiting on the sidelines for the market to bottom out, it’s time to rethink your position.  In making any decision, it’s important to consider the environment you’re operating in.  And today’s real estate market environment is on the verge of the most rapid and thoroughgoing transformation since the end of the Great Depression.  New government regulations, demographic changes and a host of other factors will totally transform the way we do business.  You can’t afford to ignore these changes!

Sale price is only part of the equation when you’re making the decision to buy.  You have to figure in the cost of the loan as well.  The historically low mortgage interest rates we’ve enjoyed for the past three years are about to vanish.  The market is poised to make gigantic changes in the coming months and if you’re blinkered by adhering to the sole criterion of “lowest price” you could miss out on a great opportunity.  The market is about to become a leaner, meaner place and it’s important to lock into lock yourself into a good, low mortgage rate now before the rates skyrocket. We’re looking at a confluence of proposed legislation and environmental changes could make housing loans smaller, harder to qualify for and much more expensive.

The Dodd–Frank Wall Street Reform and Consumer Protection Act  was signed into law by President Obama on July 21, 2010.  Dodd-Frank is the most sweeping change to financial regulation in the United States since the Great Depression.  The Obama Adminstration’s report, Reforming America’s Housing Finance Markets, is the plan for implementing Dodd-Frank by drasticly reducing the government’s role in the housing finance market and completely restructuring how the market does business.  The report can be viewed at http://www.treasury.gov/initiatives/.

Congress is looking at eliminating the mortgage interest deduction, and policymakers are debating the desirability of requiring Qualified Residential Mortgages (QRMs) with a 20% down payment.  Fannie Mae and Freddie Mac will be gradually phased out with the expectation that private capital will take their place.  Since Fannie and Freddie originated 60-65% of mortgages from 1988-2008 and a whopping 90 percent of new mortgages since 2008, there is question of whether private capital has the capacity or the willingness to fill the void they will leave.  We can expect the phasing out of Fannie and Freddie to result in reduced liquidity and higher lending rates.

In 2012, the interest rate is expected to be 5.7 percent.  Even a half-percent increase in mortgage interest can add a hundred dollars or more to your monthly payments, depending on the amount of your loan.  MoneyWatch.com’s Carla Fried gave a hypothetical example of what a 5.7 percent interest rate would mean in terms of real money:

“If you take out a $300,000 30-year fixed rate loan today at 4.6 percent your monthly tab will be $1,537. But let’s say you instead decide to wait another year or more on the theory prices are heading lower. If during your wait the 30-year fixed rate rises to 5.7 percent you would need home prices to fall nearly 12 percent to come in at the same monthly mortgage cost as what you can get now.”

Even without the proposed new legislation, mortgage interest rates are on the rise.  This graph from the BankRate.com web site shows that interest rates are beginning to rise again.  The site explains that, “The 30-year fixed-rate mortgage, considered a bellwether home loan, rose 6 basis points to 4.71 percent from 4.65 percent.  Other mortgages followed a similar pattern. The 15-year fixed mortgage climbed to 3.86 percent, up 7 basis points. (A basis point is one-hundredth of 1 percentage point.) Another fixed-rate product, jumbo mortgages, which generally are those for more than $417,000, hit 5.2 percent, up 1 single basis point.”

If you are interested in an expensive home, be advised that the loan limit for a conforming high-cost mortgage will be decreased on October 1, so it is very much in your interest to lock into a conforming rate now.  You also should lock into a mortgage now if you are interested in a low-cost FHA housing loan.  The fees and downpayments for these loans have been on the increase.

In short, new regulations and changes in the market environment will trigger a sharp increase in mortgage interest rates and cause the actual cost of home ownership to increase dramatically.  In the words of Washington Post columnist Kenneth R. Harney, “Take a snapshot of today’s mortgage market conditions and frame it, because it’s highly likely you’ll never see anything like these favorable combinations of rates and terms again.”

Other forces that may raise costs are also in play.  The scenario of a “glut” of housing depressing values for the rest of the decade appears to be very unlikely.  Though it’s hard to imagine in today’s depressed housing market, demand for homes may soon exceed supply.  Moody’s Analytics predicts that the number of distress sales will begin to fall in 2013, and that prices will begin a slow increase.  Since home building is at a standstill, the glut problem will gradually resolve.  This reduction in excess inventory will be accelerated by a demographic trend, “household formation” which the Wall Street Journal defines as “the number of new households each year.”  Household formation, the Journal says, is on the rise, and “promises to take a bite out of the glut in coming years.”

This household formation trend reflects the fact that the majority of Americans have a strong desire to buy their own homes.  An April 12, 2011 survey by the Pew Research Center found that out of a sample of 2,142 adults, 81% agreed that buying a home is the best long-term investment a person can make.  This indicates that the demand for homes is real but pent up.  As the recovery continues, market prices will rise.

Ashleigh Leigh of Linton Hall Realtors says that indicators already point to a market that is on the mend, “The market has gone up 40% in the last two years and will continue to rise.  Now is the time to jump in and buy.  If you wait too long, you won’t be able to afford to be part of it.”  Leigh adds that since market conditions are changing rapidly, “you need to lock in on a favorable interest rate quickly.  At Linton Hall Realtors we offer a prequalification service so that you will know exactly how much you can borrow and at what rate.  Being a prequalified buyer demonstrates to sellers that you are ready, willing and able to close a deal.”

To learn more about the financing service offered by Linton Hall Realtors, visit the web site at http://www.lintonhallrealtors.com/lintonrealty/index.php?PageID=100&portal=buy&section=mortgageglossary&page=prequalify or call Ashley Leigh at 703-485-4663, ALEIGH@ACLTEAM.COM today to discuss your specific location and circumstances.

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