I’m pretty sure most of you have heard about this being the best time to buy a house in at least 20 and maybe 40 years. If you don’t know about it from your local paper, or your favorite online news source or even a neighbor, you’re either in retreat or you are insanely busy. Interest rates are at a historic low, the government is giving away free money, prices are more than reasonable for the most part, real estate agents are jumping at the chance to help you out, there is a decent inventory and it may get even better in the next month or so as sellers rush to get their homes on the market to take advantage of the upcoming homebuyer’s tax credit deadline.
The interest rates apparently aren’t going to last. The Federal Reserve Bank is threatening to stop buying back mortgage backed securities…blah, blah, blah…don’t nod off yet…but if they do what they are threatening, interests rates could go up 1-2 percentage points. And soon. Each percent equals $10,000 in purchase power. So if you qualify for a $200,000 purchase price, and the rates increase by 1%, your buying power goes down to $190,000. If rates go higher, the difference in purchasing power gets pretty drastic. And the FHA (Federal Housing Authority) is rethinking its risk exposure and considering raising its down payment requirement from 3.5% of purchases price to possibly 8 -10% putting many potential buyers out of the market.
So why are some buyers still hesitant? Sometimes all the statistics and incentives in the world can’t shake a lack of confidence in the economy. And sometimes it’s just a matter of helping the consumer understand what’s at stake.
But there are other issues. Just a few years ago the loans that helped bloat the real estate bubble were easy to get and buyers who shouldn’t have bought did and walked away from the closing table with a house that they had a good chance of losing. As a consequence lenders and their underwriters are not only operating under stricter guidelines but the new appraisal rules have affected at least 70% of transactions in 2009, according to the National Association of Realtors. I personally had two transactions go awry over some “inadequate” appraisals. One was resolved and another just didn’t happen.
A good credit score is more important than ever and many lenders insist on a score of at least 660 especially if you want to take advantage of those 4.75% interest rates. Even investors and buyers looking at jumbo loans are looking at 6% or below. So, let’s see…you need good credit, a decent down payment, a steady paycheck, a home that is worth the purchase price, and in return you get a decent deal, free money even if you are not a first-time homebuyer, the lowest interest I have ever seen, and a chance to move this economy out of the doldrums. Not bad.
And yet, some potential buyers still wait. Have consumers lost all confidence in the economy? Are too many people out of work? Are some buyers waiting for prices to tumble even further? On January 26, the Spokesman-Review published the following headline, “Poised for recovery, the economy is lurching forward,” giving a consumer confidence rating of 55.9%, the highest since September 2008 though not anywhere near the heady ratings of 90%, the gold standard in consumer confidence indexes. Then Investors Business Daily quotes an Economic Optimism Index (yes, there is such a thing, I didn’t make it up) of 46% down from 48% in January. The next Consumer Confidence Index comes out on February 23.
What does this all have to do with someone buying a house? Well, if we believe the naysayers and purveyors of a Chicken Little philosophy, we question our own decisions and tend to take a “wait and see what the rest of the world is going to do” attitude and by the time we hear about “one of the best real estate markets in the past forty years” in the media, that market is already passing us by.
There’s nothing wrong with a little caution. It would have been a blessing when lenders were handing out mortgages like Whole Foods used to hand out food samples. Have you noticed how Whole Foods is getting stingy with their samples? No more free lunches of brie and crackers with some smoked salmon followed by a dark chocolate truffle. Taking the lead from Whole Foods, lenders have become more judicious in their practices and the lending free-for-all has ended.
And there are still more foreclosures and short sales on the horizon and millions of Adjusted Rate Mortgages (ARM’s) are due to change in 2010 which could price some homeowners right out of their own homes.
But none of this should discourage investors, first-time homebuyers or move-up or move-down buyers from visiting a lender and checking out the inventory of homes. Looking doesn’t have to mean buying so offer your favorite Realtor lunch and a latte and head out for a couple of hours to see what you may be missing.
Once a week I email my customers a list of “Homes I Love” which could mean it’s a fabulous deal, unique property or prime location or a combination of all three. If you’re interested, I can put you on the list. As The Group’s founder Larry Kendall is often quoted as saying, “You may not be buying, but you always need to be looking.”