"Now really *is* the best time to buy a new home." Is it?

In My Humble Opinion
1

That;s the way the radio commercial has gone for as long as I can remember. Presumably we’ve been living in some mystical endless moment of buyer advantage for the last decade?

My better half is getting the itch to buy a house (we own a condo at the moment). Pursuant to her doctrine of never discussing any financial decisions until they are a fait accompli, she talked to a realtor on her own and started the ball rolling…got printouts of some listings and so on.

The realtor is urging her to buy now because now is suddenly the best possible time to buy. The reasons cited:

  1. Interest rates will rise soon and keep rising. Since that affects home loans, we’d get lower interest loans now.

  2. It’s been a seller’s market for years. Buyers had a hard time making offers and competition was fierce. Now that’s momentarily not true, and listings are languishing, giving sellers the incentive to consider slightly lower offers.

  3. We live in the superheated housing market of Northern Virginia. Prices are only going to rise.

I realize this is going to be a matter of opinion more than empirical fact…but are both those things more-or-less true?

We paid off all debt about a year and a half ago, and were working on a 2-year plan to restore our credit before re-entering the market. The call to the realtor came before the anticipated “sit down and assess where we are” session, and I feel like we’re shortcutting and rushing the process.

But according to this realtor, who of course stands to make a lot of money if we buy, the pressure’s on and we should rush to buy.

I admit I’m not just skeptical, I’m feeling a bit railroaded. So I’m aware my response so far hasn’t been based on the acts of the market or anything.

What do you Dopers think about buying now?

Sailboat

2

I’m not a realtor or an economics professional, but from my layperson’s knowledge and observation the answers to all of these questions is ‘yes’.

  1. Yes, interest rates are rising, and will probably continue to for at least the next little while. But they aren’t rising so fast that you need to freak out about buying TODAY. In fact, our mortgage broker is telling us that his “expert” is predicting a recession next year that could drive interest rates even lower than they are today. And if you’re really concerned about getting today’s rates, find a good real estate broker and get them to “lock” something in for you while you spend some time looking. If you don’t find something before the lock period expires, just lock in the next best rate until you do.

  2. Between two and a half and one and a half years ago when my husband and I were looking to buy a home, if you didn’t put in an offer on the first day of the first Open House (and one that was well above asking price, no less), you could kiss the house goodbye. Things moved so fast that buyers were making bids on properties sight unseen.

For the past several months, “For Sale” signs have stayed firmly implanted for months on end before adding the “In Escrow” or “Sold” sign to the top. It really is much more of a buyer’s market today than it was even just 6 months ago or so. But I don’t see that trend changing very soon, so why your realtor thinks this is a reason to rush you, I can’t imagine.

  1. Our case might be unusual because of our location, but our little beach bungalow has appreciated so much in the past year and a half that if we wanted to buy it today, we couldn’t afford it – property values have gone up that much. But so what if property values in your area do go up by the time you’re really ready to sink your teeth into the buying process? So you change your parameters and look further from the coast, or for fewer bedrooms or some other accomodation. Or you figure out some creative financing that will help you afford it. Or by that time you’ll have saved up enough for a bigger downpayment so you can still afford similar properties.

None of the excuses your realtor is giving you is reason to rush yourself into something you’re not comfortable doing. Trust your gut. If you feel you’re being railroaded to move more quickly than you’re ready or willing to right now, be firm about putting some pressure on the brakes. When you’re rushed through this process, you can make serious mistakes that could cost you thousands of unnecessary dollars. Do your due dillegence. Line up a good real estate attorney to look over every document with a fine-toothed comb. It is way too huge an investment to be ramrodded through by someone who’s only interest is making an immediate buck off your back.

Good luck!

3

Don’t count on this. There’s a very good chance that US housing prices are going to level off very soon and stay flat for a while, or at least not keep pace with inflation. Of course, they might crash too.

If you’re planning on staying in the place for a while (say ten years or so), now might be a good time. Otherwise, there’s a good chance you’ll lose money on the deal.

4

We’re also in northern VA and I keep an eye out for what the market is doing. We sold our townhouse 4 years ago (single weekend, multiple offers, 2 with escalation clauses, = bidding war) and bought a detached house for a truly frightening amount of money. Last fall, our nothing-special townhouse went on the market… and sold for rather close to what we’d paid for the detached house 3 years earlier. We could not afford our detached house if we were to buy this year.

Since then the market has definitely slowed down. There are a number of detached houses in our area which have been on the market for months and have had price reductions.

Interest rates have definitely increased but are still relatively affordable - you could get a 30-year fixed mortgage for less than 7% if your credit score is decent.

As a buyer, it probably isn’t a bad time to buy, given the reasonable interest rates and much larger inventory (this time last year, there were 30ish places for sale in our area, this year there are over 100. Including 10+ detached houses; our area is very dense and has mostly townhouses/condos).

The flip side of that of course is that if you own a condo, you may have a lot of trouble unloading it. Condos always take the biggest hit when prices level off / fall. We had friends who lost so much equity in their condos that they had to take 15K cash to closing when they sold, just to get out of the mortgage, back in the mid 90s.

I would not count on housing prices to rise all that much, especially not in the short-term.

Anyway - if you don’t need the condo sale to provide a down payment, and if you’re looking to buy something that you’re comfortable staying in for a long time, it might not be a bad time to buy. Don’t do it if you are having to go with any exotic mortgage types to afford it though, unless you’re d*mn sure you can afford whatever payment changes happen with rising interest rates.

It certainly can’t hurt to check what sort of interest rates you could get with your credit score, and also see what sort of house you could afford.

5

The advice I’ve gotten from a bunch of financial and real estate people is that 1-2 years from now will be the best time to buy.

6

It’s impossible to say.

But, man, there sure are signs that a big slow down is afoot. It’s hard to imagine property values declining because we haven’t really seen that kind of thing in a while. But, the Japanese have. It has happened here and elsewhere. Real estate can go down.

If a couple years from now, a lot of these “interest only loans” start defaulting, especially if interest rates going higher, you’re going to see some serious down turn, and possibly a real crash. I know more than one person in a place they can’t afford.

If I was just looking at it like an investment, I’d wait (for sure, I can’t see it growing faster than cash can grow right now). But, buying a house is different than an investment.

And, NOVA is no different than anywhere else. The fact that it has been “superheated” for so long might bode worse for it.

7

Yes, but home prices tend to vary inversely with rates (obviously, there are many other factors as well), so the rate should not be the primary concern. What you should weigh, economically, is the real cost of housing and the value of the investment you make in the home. Make sure to compare it against the investment you could make in other areas. In addition you should consider how much the non-economic reasons for owning a home are worth to you.

True, but misleading. There has been a drop recently, and so far it’s short term. The claim that it won’t become long term is unverifiable, though. And there are a lot of signs that suggest that it will become a long term drop. The increase in “exotic” mortgages and rising interest rates will lead to high default rates and motivated sellers. The high price of housing has led to a huge expansion of the supply in the past few years, which is still ongoing since the construction industry has a decent amount of momentum. And the meteoric rise in housing over the past few years will likely regress to the mean.

Just not true. Housing prices tend to rise over time, just as all good investments do, but there’s no guarantee that they will do so over a particular period of time, or even that they will do so faster than inflation. Historically, I believe that owning a home is at best a mediocre investment, before the tax advantages are calculated. Whether the tax advantages are worth it to you depends on your situation.

This is a red flag to me. Buying a house is a huge financial decision. Don’t let the realtor talk you into a move you aren’t sure you want to make.

Personally, I think it’s a terrible time to buy a home, especially in the markets that have experienced such huge gains in the last five or ten years. Of course, for me, it’s purely hypothetical decision.

8

I live in the Bay Area. We bought ten years ago, which was really the right time to buy. That doesn’t help you much.

Around here, the increase in prices is slowing down, and houses are staying on the market a bit longer. Maybe things will go up again, but maybe this is the sign of a big slow down and a price reduction. I’d be really nervous about buying at the top. Ask your realtor if sellers will accept an offer a lot (5%) under the listing price. If not, the market is not really weak.

Don’t worry too much about interest rates. If they go up, you’re locked in, assuming you have a fixed rate mortgage. If they go down, you can refinance.

Do you get mailings from realtors on asking vs. selling prices in your area? How is that? That’s an excellent sign of the state of the market.

9

We don’t play the housing market like some folks do. My husband bought the house like 26 years ago with every intention of living here til retirement or death. But we’ve been thinking seriously of retiring somewhere warm so I’ve been scoping out the housing markets in NM and AZ. NM seems to be under control, at least in the rural areas. AZ is totally out of control.

Another shocking market is California. I watch those “Flip That House” shows and I’m stunned at the prices there! A MILLION DOLLARS for a 1960s ranch that my dad paid $17.5 for? ARE YOU SHITTING ME? I don’t care if you’ve installed gold plated toilets…it simply will never be worth a million bucks to me.

I’m actually entertaining the thought of staying here and freeloading off my in-laws in Snobsdale during the winter. :smiley:

10

Have you determined how much of a downpayment you can make and how much you can afford to pay each month for a mortgage? I’d do that and then see whether you can afford a house now.

11

So Interest rates are going to go up and sales are stagnant which means house prices are going to… rise? That doesn’t make sense.

12

Don’t forget to include the insurance and property taxes in the amount you’re comfortable paying each month. I saw those ads online a couple years ago that say “Mortages for $600/mo on a $100k house!!” and thought “Hey, I could afford that.” Then I added in what insurance and taxes would be and found I could afford about half of that. So be careful and don’t forget the added costs above the mortgage payment.

13

The best time to buy a house is when you need it, can afford it, and feel comfortable with the prospective house. Any type of market timing is best left to lay-psychics and people wanting to sell articles and books.