Trading up at a discount still possible

Interest rates dropped to new lows at the end of the first week in October. Thirty-year fixed-rate conforming loans were available in some areas with an interest rate of less than 4 percent. However, during the same week, mortgage applications dropped 4.3 percent, according to the Mortgage Bankers Association.

In past markets, low interest rates ignited the home-sale market. Not so today.

One reason homebuyers are holding back is that current economic news is anything but comforting. The Conference Board Consumer Confidence Index plummeted to 45.2 in August. It was 100 in 1985, which was not a particularly robust housing market. The Confidence Index improved marginally in September to 45.4.

Economists who previously said we’d avoid a double-dip recession are now not so sure. Economic growth has been slowing nationally and internationally. Even if we don’t slip back into a recession, most real estate analysts predict little improvement in the home-sale market for another five years.

Last year, home prices stabilized briefly; then the market softened again. The best homes in the most desirable locations and offered at the most competitive prices sold. The rest sat.

It was thought by many analysts that we were bouncing along the bottom price-wise and would be for some time. Now there’s concern about further price declines, although most economists think the biggest price drops are behind us.

In these uncertain times, should you buy a home? Before you can answer that question, you need to find out if you can afford to buy. Many buyers can’t qualify for the mortgage they need to buy given today’s stringent qualification criteria.

Other prospective buyers are stuck in homes that no longer work for them because they can’t be sold for enough to pay off the mortgage. Many owners can’t make up the difference and come up with enough cash for a down payment on a new house.

HOUSE HUNTING TIP: Some buyers who can afford to buy today and would like to take advantage of low interest rates are holding back due to fear. There is risk involved in buying a home in today’s market; prices could move lower before they improve. There is also risk if you want and need to buy and you postpone it.

We are living in unprecedented times. Home prices have dropped more during the recent recession than they did during the Great Depression. Even though another recession might be in the near future, at some point the housing market will improve.

New-home construction has been virtually nonexistent for years. When the foreclosure inventory that has overshadowed the home-sale market diminishes and the job market improves, the housing market will pick up. In areas with a shortage of inventory, home prices are likely to move upward. This is already happening in areas with significant job growth.

For some buyers, it’s a good time to buy. Let’s say you’ve outgrown your current home and need a better school district. If you can sell or rent your small home and qualify to buy a bigger house in a better location that will last you for decades, you could buy at a discount.

The key is to buy for the long term and be certain of your job security before you make a move. You should have cash reserves for emergencies. Partners who are both employed can hedge their risk if they can qualify on one income. That way, if one party is laid off, they don’t have to sell their home.

You also need to be able to live with a turbulent market without losing sleep. Home values fluctuate over time, but they won’t go down indefinitely.

THE CLOSING: With a long-haul strategy, you can ride out the downturns and sell when the market improves.

Dian Hymer, a real estate broker with more than 30 years’ experience, is a nationally syndicated real estate columnist and author of “House Hunting: The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide.”

Contact Dian Hymer: Email Letter to the Editor

Copyright 2011 Dian Hymer


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