Is this a Good Time to Buy a House?
By Steve Gillman - 2009
Could this be a good time to by a house? It may be the best
time in many years. Home buyers seem most interested when prices
are high, but just as we all like to see a "30% off"
sale at the grocery or furniture store, we should consider buying
a house when they are selling for less than they have in years.
What if you already have a home? You might hesitate to move
up to a larger one now, and given the number of people in over
their heads on their mortgages, it makes sense to be careful.
On the other hand, if you're hesitating because you don't want
to sell your current home at these low prices, you may want to
Suppose you owe $90,000 on your home. It was worth $180,000
just two years back, but values have dropped by 20% in your area
of the country, so it's now worth $144,000. Does that mean it's
a terrible time to sell or not? If you have plans to someday
move into a larger home, this may be the best time to sell your
We'll suppose that a home you're looking at is selling for
$220,000. Maybe it would have cost you $275,000 just two years
ago - before the 20% drop in values. If you wait until your own
house is back to a value of $180,000 the other home will also
likely be back to $275,000, so does it really make sense to wait
to get $36,000 more for your home if it means paying $55,000
more for your next home?
Of course, if you have the financial means, you could buy
the new home now without selling your existing one. You might
rent it out and wait for better times to sell. That makes sense
if you have the ability to do it, but if you need to sell to
buy more house, now is the time to do so.
The Great Depression was the last time there was such a steep
decline in home prices. Call it a crisis, or a "correction,"
but it just as meaningful to call it a "sale." Yes,
it's probably a good time to buy a house. There is no guarantee
that we have reached the bottom on prices, but at the very least
you know you'll be paying substantially less than you would have
two years back.
First time home buyer? Again, it makes sense to buy something
when it's on sale, and interest rates are still low (as of early
2009). It's tougher to get financing now, but this isn't all
bad, because you can feel safer knowing that banks and other
lenders are no longer allowing you to get mortgage loans you
can't afford to pay.
Homes are on sale, interest rates are near all-time lows,
and lenders are no longer pushing mortgages that get you into
trouble. A good time to buy a house? It may be the best time
to buy a house.
Note: Just after writing this in early 2009, we did
buy a house, and we got a 30-year fixed rate mortgage at (you're
not going to believe this) 4.5%. One "point" in fees
and no other catches. - Steve
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