When Is It Really The Best Time to Buy A House?
by admin on 16/03/10 at 3:58 pm
If you talk to any real estate agent you’ll hear the same mantra: it’s a great time to buy a home. Realtors said it in 2001 when home prices were climbing steadily, they said it when prices peaked in 2005, and they continue to say it today. So what’s the real answer?
There a couple of ways to figure out the timing of the housing market: one involving poring over statistics and one much easier to figure out.
If you’re statistics minded there are three metrics to examine, according to Barry Ritholtz, C.E.O. and director of equity research at FusionIQ, a quantitative research firm, quoted recently in the New York Times:
the ratio of median income to median home prices, which gives you an idea about affordability
the cost of ownership versus renting – if rents in your area are much cheaper than carrying a mortgage that’s a sure warning sign
the value of the national housing stock as a percentage of gross domestic product
Each of these factors were greatly inflated during the housing bubble and are still not back to historical levels. According to Ritholtz there are two ways for these metrics to get back to normal: home prices could drop another 15 percent, or they could remain flat over a period of seven years while the GDP and personal incomes grow. That’s certainly not a vote of confidence in the current housing market.
A simpler method of evaluating the housing market is to simply look at where interest rates are headed. Will borrowing money get cheaper or more expensive? That determines whether you cna buy more or less house.
While it may be impossible to predict whether housing prices have truly bottomed out, all signs point to interest rates climbing over the next few years making it more expensive to finance a home.
The bottom line is this: if you’re thinking about buying a home do it for the right reasons. Don’t view your home as a short-term investment and be sure to compare the cost of buying vs. renting. If you’re in it for the long-haul, then this is as good a time to buy as any. But if you’re looking to make a quick buck, the housing market is not the place to do it.
photo credit: coffeego
