First-Time Homebuyers: Find Opportunities in Today’s Housing Market
Historically low interest rates make right now a good time to buyThe Real Estate Bubble has Burst...Mortgage Meltdown...Home Sales Thud to Five-Year Low! These are the dramatic headlines that dominate the national conversations about the housing market, but what does all of this mean for the first-time homebuyer?
The reality is that housing sales have slowed across the country, but interest rates remain historically low -- 6.35 percent doesn’t look bad compared to the 10 percent we saw in the early '90s and 17 percent in the '80s. The combination of these two factors can easily translate into great opportunities for first-time homebuyers to maximize their purchase power by taking advantage of the changing market conditions.
The shifting market provides buyers with broader housing inventory to choose from as well as the opportunity to do more due diligence before making a final purchase decision. There is also increased opportunity to negotiate with both motivated sellers and new construction developers. With low interest rates, buyers are able to leverage significant borrowing power to find a home that meets their needs while maintaining or in some cases reducing monthly housing costs and positioning themselves well for future wealth building.
There are some key factors to consider when deciding if it’s the right time to make the commitment to homeownership:
Compare current monthly spending on rent with the costs of owning. This is a valuable exercise that can make the decision-making process a more logical one. When making the rent vs. buy calculations, make sure to take into account the principal reduction you will experience in a fixed-rate amortizing loan as well as the immediate and long-term tax benefits of homeownership. Engaging an experienced lender in your market can also be a significant asset in this phase. The lender's expertise will assist first-time homebuyers in uncovering potential resources and assets that facilitate the homebuying process.
Look at local market trends rather than national trends. Median home sales in your area could range from $141,510 in Memphis, Tenn. to $825,100 in San Francisco, Calif. and the supply-and-demand ratio will vary just as drastically. When tracking the market, you’ll need to look at the local sales trends and average pricing to determine what is happening, and what you can afford. Although a significant amount of information is available through the Internet, this is the stage where a Realtor in your area can provide great insight about the market conditions. It is important to identify an agent that is experienced with the areas where you are focusing the search.
Research the Community Based Lending Programs and First-Time Homebuyer Programs available in your market. Some programs offer 100 percent financing, below market interest rates or down payment/closing cost assistance. Many of the programs only require attendance at a homebuying seminar, so six hours on a Saturday could save you thousands on mortgage expenses. These programs are often locally based and another area where a local real estate agent and lender can be of assistance.
Decide how long you plan to stay in the home and look at appreciation in your market. The key in all of this is to have a long-term perspective. The days of home values doubling or tripling in a few years are gone, but those who buy well-located quality property with a three- to seven-year time horizon (depending on the market) are bound to continue to realize the significant benefits of homeownership.
Ultimately the decision of whether to stop renting and make the move to homeownership should be made based on personal finances and local market conditions. Engaging a talented team of real estate professionals will allow first-time homebuyers to navigate the homebuying process and be better positioned to take advantage of the market shifts that can create long-term benefits for buyers.