Shortly after I wrote the post below, I saw this:
3 reasons home prices are heading lower - CNNMoney.com
Friday, January 15, 2010
Wednesday, January 13, 2010
I am not so sure this is a good time to buy a house, but if you are, some tips
While interest rates are very low, and many real estate professionals will tell you it is a great time to buy because of the low rates, other concerns may be cause to wait. Two points that I feel should be considered are: what happens to prices when rates inevitably rise and will the large number of homes with owners no longer paying the mortgage finally pour onto the market?
Banks approve loans based on the ability make the scheduled payments. When rates are low, the same payment can support a larger loan amount. This pushes up home prices because bidders can offer more for the same payment the banks are willing to approve based on a given income. When rates rise, banks approve lower loan amounts, reducing the amount home buyers can offer, pushing down prices.
In addition, record numbers of mortgages are not current on the payments(see graph below). Why such a large number of mortgages are delinquent, and the homes are not being foreclosed on, is subject of much debate and speculation. How these non-performing mortgages are finally worked out is beyond my ability to predict the future. That understood, my opinion is that the combination of low rates and large numbers of defaulting mortgages creates a situation where the downside risk to housing prices is greater then the upside risk. In such a situation, I advise buyers to carefully consider buying a home.
If it is known that the home will not be sold for 15 - 20 years, and a 30 fixed loan is used, it could be a OK time to buy because the payment will be on the affordable side and will not go up. The concern is that if in say 5 years the home will need to be sold, rates may be higher and the large number of defaulting mortgages could be causing increased supply--a double whammy for prices.
In the event you do decide now is the time for you to buy, here are a couple of links you should visit to help you do due diligence on the home you are considering:
50 Tools to Research Your New Home, Neighborhood, and Community
When 'dream house' becomes horror home
Banks approve loans based on the ability make the scheduled payments. When rates are low, the same payment can support a larger loan amount. This pushes up home prices because bidders can offer more for the same payment the banks are willing to approve based on a given income. When rates rise, banks approve lower loan amounts, reducing the amount home buyers can offer, pushing down prices.
In addition, record numbers of mortgages are not current on the payments(see graph below). Why such a large number of mortgages are delinquent, and the homes are not being foreclosed on, is subject of much debate and speculation. How these non-performing mortgages are finally worked out is beyond my ability to predict the future. That understood, my opinion is that the combination of low rates and large numbers of defaulting mortgages creates a situation where the downside risk to housing prices is greater then the upside risk. In such a situation, I advise buyers to carefully consider buying a home.
If it is known that the home will not be sold for 15 - 20 years, and a 30 fixed loan is used, it could be a OK time to buy because the payment will be on the affordable side and will not go up. The concern is that if in say 5 years the home will need to be sold, rates may be higher and the large number of defaulting mortgages could be causing increased supply--a double whammy for prices.
In the event you do decide now is the time for you to buy, here are a couple of links you should visit to help you do due diligence on the home you are considering:
50 Tools to Research Your New Home, Neighborhood, and Community
When 'dream house' becomes horror home
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