Despite Housing Slowdown, Today's The Time To Buy. Can You Afford To Purchase If Prices Or Interest Rates Rise?
Potential buyers and investors have given considerable thought to both housing prices and interest rates recently for two reasons: First, they have been intrigued by comments from national economists about the statistics supplied by the Department of Housing an Urban Development that showed a 10.2 percent drop in the rate of new single-family home sales between July 2006 and July 2007. Second, mortgage money for many homes will be more difficult (and possibly more expensive) to obtain, given the sub prime fallout and reports that borrowers in the “jumbo” category (loan amounts greater than $417,000) were facing increased scrutiny.
The idea of “saving my money until home prices come down” has probably become a contradiction in terms, at least for the foreseeable future. Yes, housing is cyclical but it usually does not go backward for very long, if at all. The additional money you save now probably will not offset the potential appreciation or the fatter monthly payment that could result if interest rates rise.
For example, if a $250,000 home appreciated 5 percent in the next year, could you sock away an extra $12,500 in after-tax savings to counter that gain? This also does not take into account additional tax savings from the mortgage-interest deduction. Or, if the market remains flat and mortgage interest rates rise, will you still even be able to qualify for the home of your choice?
Mortgage-interest news has not been positive. The inflation and energy fears that were in the news two years ago have now taken a backseat to how scarce mortgage money could become~ especially for jumbo loans.
So, if you find the home you’ve always wanted and have your financing lined up, whether it be a primary residence, a second home or investment property, buy it and hold on to it. Real Estate has been a terrific long-term investment.
While the market “might have peaked” nationally, housing is local. Boom markets, where real price growth increases at least 30 percent over three years, have been heavily concentrated in California (21%), the Northeast (18%), and Florida (11%). And, according to the Federal Deposit Insurance Corp, boom does not necessarily lead to bust, only 17% of all housing booms ended in busts. Most busts were preceded by a significant stress in local economies, such as loss of jobs. A bust is defined as a nominal drop of 15% over five years. Having that type of decline, for that long would require a dramatic event.
Do not take all national housing news and apply it as gospel in each and every neighborhood. Housing will continue to work well as a long-term investment as long as strong fundamentals are in place.
Scott Wilson
President/Broker
Futura Financial Inc.
626-442-1888











