LETTERS From CAMP Rehoboth |
CAMP Money |
by Chris Beagle |
Is Now the Time to Buy?
As the saying goes, "Out of sight, out of mind." Given the magnitude of the financial crisis of the last two years, it's easy to forget that within this decade home prices soared 20% and more per year. Many people rode a wave of asset accumulation during this time, but the shock to our systems has been the virtual 180 degree turn in the market and the seemingly endless drop in property values. But as I indicated in the last issue, we may finally be witnessing the turning point towards an economic recovery. Prime real estate buying season is upon us and fortunately, many Americans have started to jump back into the home buying market again. More and more national real estate experts agree that market conditions are stabilizing and moving to a new 'normal.' In fact, this year may truly represent one of the best home buying opportunities you'll see in your lifetime. The time to buy is now! And here's why: mortgage interest rates are at all-time lows, there are more homes for sale than we've seen in decades, and prices remain low. Let's explore... Since the federal government began recording data on Fixed-rate mortgages in 1971, rates have never been lower. At press time, most 30 year fixed loans are below 5.00% (loan amounts less than $417,000). Many ask the question, "How long are interest rates likely to stay this low?" While I'd love to proclaim a private channel to Ben Bernanke's thought process, unfortunately this is simply a dream. Instead, I'll have to bank on the Federal Reserve chair's continued commitment to purchasing mortgage-backed securities through at least the end of the summer. By doing so, this should help keep mortgage interest rates low, stimulate home buying, increase consumer confidence, and ultimately result in a sustained period of economic growth. Some attention should be given, however, to the fact that these historically low interest rates are tied to loan amounts under $417,000 and are for good-credit borrowers who can fully document their income. While this obviously doesn't apply to all, it certainly is a large portion of the population and represents a positive step in the right direction. In addition to low rates, the high inventory of available homes is another incentive to buy now. More homes for sale gives buyers more options when choosing their new home or investment property. While the figure for existing homes for sale peaked last July at an 11-month supply, it stood at 9.8 months in March and continues to show signs of declining further. Lawrence Yun, chief economist for the National Association of Realtors expects the inventory supply to fall below an 8-month supply by year end, which would be "consistent with home price stabilization." Of course these figures vary regionally, but still reveal an abundance of choice for buyers. And finally there is price, the age old question on the mind of every buyer and seller who both want the "best price possible." Many prospective homebuyers naturally want to know when prices will hit bottom, but pinpointing a bottom in home prices is very difficult, akin to picking the bottom of the stock market. Good luck with that. But given the current environment, increasing data and research indicates we just may be there. Equally as important to the seller, the bottom of the market allows a ray of light to be seen at the end of a potentially very long and dark tunnel. It signals that the worst may be over, but can, in turn, motivate the seller to hold out for a higher price. It's a classic "Catch-22." Locally, the median home price of homes sold in Rehoboth Beach dropped to $399,000 in 2008, down by nearly 50% from 2005, when the figure was $786,000. Thus far in 2009, however, that number is up significantly to $492,000, according to Andy Staton, co-owner of Beach-to-Bay Real Estate Center. "Home prices are where they should be and they are selling," says Staton. "Home buyers waiting on the sidelines to time the market are making a mistake. The statistics speak for themselves." Year-to-date figures provided by Staton reveal that 63 single family homes in Rehoboth have either closed or are under contract. "Projecting these numbers through year end means we could double the number of homes sold in 2009, over the last four years combined." The tide may be turning. "The Rehoboth/Lewes area is blessed with proximity to Philadelphia, D.C. and Baltimore," says Mitch Selbiger, Associate Broker of Ocean Atlantic Realty in Rehoboth. "Adding the demand of retirees and vacation home buyers, we are likely to see ever increasing demand and rising prices in advance of the rest of the country." We aren't likely to see the kinds of gains experienced in the housing industry just a few years ago for quite some time, if ever. But combine low interest rates with high inventory and lower home prices and suddenly buying a home is manageable. Long-run historical data indicate that homes generally match the inflationary trend, rising about 34% annually. Upcoming months are likely to reveal an interesting and challenging period for buyers and sellers to negotiate. In the best interest of both parties, the key is to set realistic expectations, work with a knowledgeable and qualified realtor and loan officer and above all, don't miss out on the opportunity.Chris Beagle is a Senior Loan Officer at Fairway Independent Mortgage Corporation. For more information, contact Chris at 302-260-7090. |
LETTERS From CAMP Rehoboth, Vol. 19, No. 05 May 22, 2009 |