U.S. Home Prices Keep Falling. Why Should You Buy?

[No DUplicitous DUpe]

U.S. Home Prices Keep Falling. Why Should You Buy?
(posted with permission from: http://sane-ramblings.blogspot.com/2011/04/us-home-prices-keep-falling-is-this.html

For six months in a row, prices have fallen. Last year there were a million foreclosures. This year there will be at least a million more. Many homes are worth less than their mortgages and that number is growing fast. Meanwhile, the U.S. has 20 million people who are unemployed, underemployed or are no longer counted because they have been out of work for over 99 weeks. Also, high food and gas prices are pinching budgets. Why should you buy?

Speaking to you as a 35 year real estate investor, my advice to you is to rent, not buy. Few people can afford to buy in this terrible economy and prices will keep tumbling. But if you have the money and want to buy, please do so only if you can afford to stay in your new home for at least 3 years and preferably 5. I'll explain:

The U.S. government tried to stabilize home prices by offering big tax benefits to buy homes and is still offering incredibly low mortgage interest rates. They nationalized the mortgage market under government owned Fannie Mae and Freddie Mac and by having Fannie and Freddie keep foreclosures off the market they hoped prices would rise. Instead, these programs are failures and have grossly distorted a marketplace that would have cleansed itself had the government allowed it to do so. Last year the major foreclosure sales actively began and the pace will increase this year and probably next year as well which will pressure prices downward.

But if you want to buy there is some good news. Although prices keep falling, you have many homes to choose from, including foreclosed homes and short sales, meaning the lender will forgive the seller part of the mortgage amount to allow a discounted sale. In many areas, more than half the sales are foreclosures and short sales. You may be able to afford a home that used to be well out of your price range.

If your credit is strong, you can also get a 30 year fixed rate mortgage in the 5% range, something that will become virtually impossible once inflation really kicks in and when the Fed stops manipulating interest rates down to artificially low levels. But even that is bad news for as interest rates rise, even fewer people will be able to afford to buy homes, unless sales prices continue to fall.

In any case, if you want to buy, please proceed with caution doing very careful market analysis with your local real estate professional.

[MineralMan]

1. Because you want a house?

In my area, the median home price has continued to go down. Part of that is because there are all these foreclosed houses being sold at liquidation prices. Most of those need a bunch of work done on them. I could buy a house here in Saint Paul for under $30,000. I wouldn't, though, because I'd have to spend a pile of money or a pile of time making it livable.

Those houses are driving the median price down and down hard. On the other hand, three houses have sold on my block in the last year. In 2004, they would have been in the $175K range. This year, they're in the $150-160 range. They're owner occupied and owner sold, and they're in great condition. They've dropped in price a little, but not to the degree the median price would indicate.

People buy houses for lots of reasons. One of those reasons is that they want to buy a house for their family to live in. Nicely-maintained houses are holding their value, or close to it. Run-down houses with lots of problems are going begging. Folks don't want those houses, except for rehabbers, who love the current situation, and are buying up places to fix them up.

Home real estate values aren't as simple to figure as many people think. Good houses are still selling, and close to their 2004 prices here.

[nebenaube]

2. "very careful market analysis with your local real estate professional"

Didn't these brainiacs help create this mess?

[louis-t]

3. Do we HAVE to go through this again?

How did Real Estate agents 'help create' the mortgage mess? Let's hear your 'facts'. I'm waiting.

[MineralMan]

5. Yes, actually they did help to create this mess.

The key is "very careful market analysis." The analysis is up to the home buyer, to be quite frank. In today's world, where anyone can see every listing available in every city, using the MLS tools available everywhere, there's no excuse for home buyers not doing their own analysis. It's easy.

What's stupid is to only look at what an agent shows you. It's your money. Go find houses in your price range that interest you on your local MLS system, then get a real estate agent to show those houses to you.

Buying a house is serious business. Truly. Some people research cars in more depth than they research a house they're thinking about buying. That's just stupid.

Disclaimer: I have bought and sold two houses without the use of any real estate agent. For the third, and my current, house, I had to use an agent, because it was already listed. I got my own agent to act as a buyer's agent, but did my own due diligence on the house and negotiated my own deal. I'm a happy camper. It's a good house.

[former9thward]

4. The only thing I disagree with your post is the comment about the real estate 'professional'.

I think that is the last person to get an opinion from. It is their job to sell houses. Only way they make money. They will push you into some house no matter what it is actually worth.

[SheilaT]

6. I believe the current mortgage interest

rates are well below 5%.

I bought a home here in Santa Fe just under two years ago. 20% down. Interest rate of 4.75%. 30 year fixed. It's possible my house has declined slightly in price in two years, but I have equity nonetheless. Oh, and what I paid was somewhat under the median home price in this city. And my monthly payment is less than my rent was.

So there are circumstances and locations where it makes plenty of sense to buy. Others, it's more reasonable to rent. You can't make a blanket statement in favor of one or the other.

[No DUplicitous DUpe]

7. Re: I believe the current mortgage interest rates a..re well below 5%

5% is pretty close:

These numbers were for a $300,000 loan in the Denver area:
Bankrate.com
Site Average 30 yr fixed mtg, 0 Points 4.65% APR - 5.27% APR 5.07% RATE 4.83%

[No DUplicitous DUpe]

12. That's a great point...

The author responds:

Please tell the poster in Santa Fe to enjoy his or her home, for the secenery is probably beautiful as is the neighborhood and the financing on it is excellent. With time, financially it will be rewarding but from a quality of life perspective, it already is.

[REP]

8. Because mobey is free now (very low interest) and houses can be found below market

For anyone who waited out the boom to buy a house, this is a great time to get one you like. I just did :-)

[dmallind]

9. A lot of reasons

1. Need to live somewhere.

2. Mortgages are almost always cheaper than rent for same house (check Zillow or Realtor.com).

3. Better tax advantages - even a 100k mtg will cut about 5k a year from your AGI.

4. More freedom to decorate etc as you wish.

5. The value of any improvements you make are yours not your landlord's.

6. Improves credit rating.

7. Nobody else can decide you need to leave as long as you pay your mortgage (perfect renters are still at the mercy of their landlord's whim and have to hope they pay their bills too or the landlord can get foreclosed on with no fault of the renter).

8. Fixed mtg rates mean your monthly payment does not go up. Rents are frequently raised.

9. Almost all rental contracts are annual. Even in this market a well-presented accurately priced house will sell in less than a year if you need to move (the much vaunted freedom of renters assumes they are on rare month to month agreements - check your local housing for rent classifieds to see how many of those there are outside exorbitant short-term corporate housing).

10. If you treat a house as a place to live with some auxiliary benefits financially rather than as an income source, and are generally responsible financially and as a homeowner, rising OR falling prices are irrelevant: in a rising market you can afford the next house because your current one has appreciated; in a falling market you can buy the next one cheaply even though your current one has become less valuable too (if your bought-for 150k house is now worth only 120k, then the 180k one you coveted at your earlier purchase is now only 144k, or the smaller version you can downsize to now the kids are gone that was 120k is now only 96k - reverse the numbers for rising markets). Only in rare and unfortunate cases where you must sell in a falling market like Las Vegas then buy in a rising one like DC is this a problem (which would also impact renters too). However that also means DC sellers moving to Las Vegas do very well.

[No DUplicitous DUpe]

11. Thank you for your excellent post...

I especially like the point you made "or the landlord can get foreclosed on with no fault of the renter"
I had not considered that one.

[onpatrol98]

13. +1

[Yo_Mama]

10. Best reason always to buy is

You're ready, you have some downpayment saved and the rent is more than the mortgage.

And rent > mortgage is coming back some places.

[Cerridwen]

14. Because you want to control a "man."

"If you want to control a man, give him a mortgage"

If you want to control someone, make sure they have plenty of debt; school loans, mortgage, credit card, pick anything; make sure they believe they need to follow the rules. Ain't no one gonna protest or strike if their credit rating or rent/mortgage is "on the table."

A complacent and/or fearful populace. Works every time.

About 1/3 of people who pay a mortgage, qualify to take mortgage deduction on their Schedule A; the other 2/3 qualify for only the standard deduction.

That 1/3 and 2/3 would be among those of us called either the 98% or the 99% depending on your metric. The top 1 or 2%, don't give two shits about mortgage deduction.

Divide and conquer.

[Art_from_Ark]

15. One big advantage of renting

You can pack up and leave at any time if you have to-- you're not tied to that particular site.