Saturday, January 10, 2009
By this time, everyone that has anything to do with Real Estate should have heard that this is a Buyers Market.
What exactly is a Buyers' Market?
What it is supposed to be is a time when:
*Homes are priced well
*Loans are at low interest rates
*People are prepared to buy.
When all of the above criteria have been met, then it can be called a Buyers' Market.
Let's take a look at today's Real Estate Climate and decide whether or not it is a Buyer's market right now.
As everyone knows, Real Estate is Local. This means that while it may be a good time to buy in say, Florida, it may not be a good time to buy somewhere else. For the purpose of this post, I want to discuss the local real estate options here in Rhode Island. (since these are the only ones I am completely knowledgeable about:)
The first criteria: Homes are priced well....This seems to be fulfilled. Many buyers' are wondering if prices will fall even more here in Rhode Island. My guess is, yes, they will continue to decline for another year at least.
The second criteria: Loans are at low interest rates. This also seems to be fulfilled. Many buyers' are also wondering if rates will fall even more....My guess is, yes, they will continue to fall, again for another year or so, but then will level off.
The third criteria: People are prepared to buy...This is definitely not fulfilled. Partly due to high unemployment rates, the economy, poor credit and general uneasiness about the market.
With only two of the above criteria met, it would suggest that it is not a bonafide Buyers' market.
Homes are priced very well right now and combined with the lowest interest rates around in the past ten years makes this an excellent time to buy.
Consider what would happen if you wait until next year or the year after. Here is an example:
You purchase a home at $150,000. today at an interest rate of 5 3/4% for 30 years. Your principle and interest payments per month will be $876.00 per month.
Say you wait for two years and purchase the same home for $132,000. (this is a depreciation rate of .5% per month for 24 months) assuming the general trend here continues.
Two years from now, there is a good probability that the interest rates will have not only dropped but started climbing back up as is generally the case when home prices have dropped. Let's say they have only crept up to the original 5 3/4% and you go for a mortgage for 30 years. Now your mortgage payment would be $770.00 per month!
Sounds like you should wait? Wrong. First, what are you paying for the 24 months you are waiting? Are you renting at say, a low price of $500.? (rare in Rhode Island if you have more than one room). If so, then you are paying over the next 24 months $12,000 minimum and still do not own your own home!
On your mortgage you would have saved over the course of 12 months, $2,544.00! Subtract this from the $12,000. you have paid out and you are minus $9456.00!! (which if you had it to throw away, you could have at least used it towards your furniture in your new house)
This is only one example, based on a buyer using a loan to purchase. If you have the cash to buy, the example would be simple, again if you are renting, what exactly would you be saving by waiting? In the same scenario you would have saved, over the course of 24 months, $9,024.00! That's $4512.00 per year. In this scenario, it may be better to wait, unless you are unhappy with your current arrangement and really want to get into your own home.
Opinions are of Karen Hurst, Broker/Owner of Stonehurst Realty only. For a free consultation, visit me at Stonehurstrealty.com and find out if this is your time to buy.