Is this a good time to buy your first home?
Experts disagree. One argues that conditions have never been better, while another says that prices are still going to fall at least 20% more. Who is right?
Is this a great time to buy your first home? It depends on whom you ask.
The Wall Street Journal recently ran a point-counterpoint set of arguments from two experts who strongly disagree on whether this is the right time for first-time homebuyers to jump into the market.
Eric Lascelles, chief economist at RBC Global Asset Management, says this is the best time in a generation to be a first-time homebuyer. "Affordability is the best it has been in 30 years, thanks to the combination of a 34% decline in prices since the 2006 peak and a historically low 4% average rate for a 30-year, fixed-rate mortgage," he writes.
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Plus, he adds that it is cheaper to buy than to rent in 98 of 100 major U.S. markets.
Gary Shilling, president of the economic firm A. Gary Shilling & Co., disagrees, saying homes are likely to lose at least an additional 20% in value in the next few years.
"The problem is excess inventories. They are the mortal enemy of prices, and we've calculated an excess of 2 million housing units, over and above normal working levels of inventories of new and existing homes," he writes. "That is huge, considering that before the housing market collapsed, about 1.5 million new homes were being built annually, a figure that shrank to 568,000 in February. At current rates of housing starts and household formation, it will take four years to work off the excess inventory, plenty of time for those surplus houses to drag down prices."
How do you know who's right?
Two key factors that can't be included in any national analysis but that should be part of your personal analysis:
- What's the market like not just in your city, but in your desired neighborhood? If prices drop an average of 20% nationwide, that doesn't mean they will drop at all where you want to live. Or they may drop more.
- Is this the right time in your life to buy a house? Do you have a stable job you expect to keep? Do you have money saved for a down payment and repairs? Are you likely to stay in the house at least five years?
If you're living in a one-bedroom apartment and expecting your second child, this may be an excellent time to buy a house, before you lose your mind – unless the circumstances of your life and of your community make renting a better bet.
The WSJ is running a poll. So far, 66% of respondents believe it's a good time to be a first-time homebuyer.
Where do you come down? Do you think this is a good time for first-time homebuyers to get into the market?
Prices are not done falling. If nothing is done to make it easier to obtain a mortgage. The values will continue to fall. Rates are at record lows and no body is borrowing, you tell me the problem. From my point of veiw the federal regulations that have been added prevent alot of folks from being able to purchase.
I'm almost 40 and have wasted the past 10 years waiting for a massive real estate bubble to burst so I can join the smart homeowner set. It makes me pretty mad that at a time in my life when I had a steady job, good credit, savings, and a significant other in a similar financial situation, houses were priced so high that it made no sense to buy one - even with all that going for us. I lost out on a decade of savings and spent it paying high rent. Now, thanks to banks and the changing economy (now I'm self-employed and single) I'm being forced to wait until next year to (hopefully) qualify for enough to buy a small house in a not so great area, or a tiny condo in a so-so neighborhood (not my 1st choice but I need a tax write-off!) I'm going to do what I need to to get out of the renting lifestyle.
Deciding if it 'makes sense' for one to buy a home isn't even half of the battle. Here in Los Angeles competition is fierce in the first-time buyer sector of the market because of investors with cash offers buying all of the modestly priced homes. So, it doesn't seem to be a good time for first-time buyers in this market. We are still dealing with the bubble conditions of multiple offers and being outbid, on top of having a tougher loan qualification process. People are still trying to skim profits from flipping houses in a deflated bubble - this enrages me. Some of us have been waiting for so long for things to 'normalize' and the market is still locking us out. Is this ever going to change?
Quite frankly it makes no sense why banks - in this economic environment - are forcing people to qualify from a credit standpoint. They should simply require a 10% minimum down payment and a 6 month mortgage cash reserve by the buyer. At this point of the economic collapse, most people who will lose their home have already done so...there are a great many people who could meet the above requirements and thereby jumpstart the real estate economy, which would help to re-invigorate the rest of the US economy. A very low percentage of these new loans would go bad debt, maybe 3 or 4 % - but that is nothing when you figure that a 96 to 97% good loan ratio would underpin the entire housing industry. With 2+ million homes in inventory, this could be soaked up in a year or so as there are a ton of buyers who can meet the aforementioned pre-requisites. And, to make up for the 3 or 4% that might fall out, add a .25 interest rate bump (from current 4% to 4.25%), and the packaged mortgages will have their hedged losses contained.
This is a simple fix, and should have happened a couple of yrs ago...its important for everyone in this country to realize that a very low percentage of loans go bad, the reason is people simply dont want to lose their home. Had this process been put in place in 2008, much of the entire mortgage meltdown could have been avoided...people with real money could have stepped in without all the bs qualifying issues.
Sometime we all have to pull the trigger, the economy seems to be stable from where we were a few years ago and getting better every quarter. I just bought my first place and its new construction. I am planning on buying land in the next year as well. Got to think about the future and hope for the best and make good choices. If you have a job and can afford the payment, do it. Interest rates are amazing; just don’t buy more than you need. That’s why some many are in the mess they are in.
I live in an area where a lot of people rent, even if they are lifetime residents of the city and have have ample income to purchase a home. I DON'T KNOW WHY THEY DO THIS!!!!
Once upon a time it was somewhat more cost effective to rent, but that pattern has reversed.
Property taxes here have always been quite low.
Some beautiful places are for sale here for a song.
The job market here is relatively healthy compared to many major cities in the nation.
A tenant's rights law was only recently established and this is historically a landlord's state.
There is some kind of historical basis for this behavior and/or just obstinacy.
I bought a place last year and I am happy as hell in it. I raked it in on my income taxes. I live in a FARRRRR better place than the place I could afford to rent. Even with all the post-recessionary mortgage insurance, property tax withholdings and etcetera, my monthly payments are less than my monthly rent. My credit rating SHOT UP about 75 points within 6-8 months after I bought. When I make a payment, some goes toward principal. Admittedly it's not a lot at this point, but some is better than nothing.
WHY WOULD ANYONE WANT TO RENT?? I am clueless. 20%? Maybe the home prices will drop more and maybe they won't. All I know is that I have gotten such a huge lifestyle upgrade by doing this and I think people who rent when they can buy are totally LOCO.
In almost every market, housing is currently well below cost of replacement. While every market area is unique, it's very hard to believe that the average across all markets would amount to another 20% on average. Not impossible, but if that's what you believe, better invest in canned goods..........and ammunition for the old 12 gauge.
It's not only the best time for a 1st time buyer, in many cases it's the only time! Every major decision comes with risk. No one knows if their financial situation will change today, tomorrow, next month or 10 years from now. I feel that in life you have to take some sound, educated risk. Otherwise, you will always live with the "what if" or "I should have" regret factor. If it doesn't work out, it doesn't work out. But at least you tried to have a piece of the "American Dream"!
I believe loss of jobs will manifest itself by further causing people to have to walk away from their homes, slowing down most recovery good news across the nation. If you can buy cheaper than rent and are not extending yourself financially beyond your means, I say go for it.
I will say, as a home owner, it's not all that it's cracked up to be. Ownership places limits on your mobility and can seriously cut into your fun time. If your career field is trending to a move to Texas, your going to be stuck where you are until you can sell. As a young person starting out, I don't believe buying is such a great idea.
My wife and I are looking at houses, thinking of buying our first home. In the area we are in we are finding 3-4 forclosed houses in just about every nice esatblished neighborhood or subdivision, for very little money.the payments are less for what we are paying in rent, the loan shouldn't be a problem with my VA. to give an example a 2500sqft , 3 bedroom 2-1/2 bath on 1/2 acre that 5-10 yrs ago was going for 100k-130k is going for 70k-90k. Grandpa had some sage advice when buying a house and you dont want to loose it, he said take the amount you make in salary in 2 years and thats how much house you can afford, and not be broke trying to stay in it. (if you make 50k a year then a 100k house is reasonable) he used the same method for cars, figure out what you make in 1 week and thats the car payment you can afford.
he never had big and flashy homes or cars but he had nice ones and never lost any of them and always had money in his pocket, too many folks went out and tried to buy a 180k house when they work a job that pays 15k a year... just sayin'
I have always felt that owning a home, if done properly, is an essential part of being financially successful. I think it is critical for all of us middle-class types to own, so that we can remain (at least) middle class. I think people who cannot buy a home are 'downwardly mobile', and will see their net-worths decline over the long-term.
Buying a home "properly" is pretty simple, buy a below-average house in a nice neighborhood, pay it off in 15 years or less, and do this as early in life as possible. Drive a cheap car, and put the money you would have wasted on a new car into paying down your mortgage. I paid my house off at the age of 43 - there's no argument that renting is better than owning in this situation. It can be a 'no-brainer' if you do it right.
some personal factors can reduce this risk. If you know you will be in the job you have in the community you are in or you work online and location is not an issue go ahead and buy. If the market goes down for a year or two then up it really does not matter as you will have a net gain by the time you sell and are really only risking how large the gain will be
Its also important to remember the 3 rules of real estate still apply location location location. Here in San Diego prices have been on the rise for 2 years for prime locations like the beach or homes with unique views, but areas far to east are still declining.
About Teresa Mears
Teresa Mears is a veteran journalist who has been interested in houses since her father took her to tax auctions to carry the cash at age 10. A former editor of The Miami Herald's Home & Design section, she lives in South Florida where, in addition to writing about real estate, she publishes Miami on the Cheap to help her neighbors adjust to the loss of 60% of their property value.