Should I buy now???

Price/Value/Cost

 The question:

What happens if I buy now and my home’s value (equity) goes down?

 Answer:

The Real Market is cyclical. Prices go up and down. How do I know if my home will be more valuable next year?

 When a Realtor helps a client (home owner) determine the selling price of his/her home certain criteria are used. The home owner must consider the other homes in the area that are similar and what price did they sell for. Also the number of homes available and how many buyers are looking must be factored in to determine the best asking price.

Presently, we are in a market cycle where our comparable home values are being adversely affected (going down) by Bank Owned Homes (REO), Short Sales, and  the uncertainty of our national and local economies. We have been spoiled by a cycle of unprecedented equity increases.  A normal housing cycle has home values increasing by an average of 3% a year.  A normal market has homes with equity in them and an economy that is producing enough income that families feel comfortable buying homes. Now is not a traditional market. There is no equity in bank owned homes and short sales.  There is no money coming out of these sales to enable the sellers to buy again. The “moving-up” cycle has stopped.  To expect home prices to increase during this time is not logical. It’s safe to assume that if you buy now, you may not see any equity appreciation in your home until the economy recovers and the percentage of REO’s and Short Sales sold is drastically reduced in the comparable price equation.

Your home’s value is based on the theory of supply and demand.  Too many buyers and too few available homes,  pushes the price up. If the number of people willing to buy (demand) is less for whatever reason and the supply of homes is overloaded by non-equity home sales, prices will go down. Banks are selling their inventory of homes at discounts. If these REO homes are sold in your neighborhood your home’s value will be adversely affected.  If you must sell now use a Realtor familiar with your neighborhood. His/her knowledge of area sales will help you determine that “best” selling price. This highest price even with their commission will net you the seller the most cash.

The Bad Part.

The price that you paid for your home may be more than your home is now worth. This value alone is the cause of many people selling their homes. Life gets complicated sometimes and events occur that require us to make decisions about owning a home. Some circumstances like job lose, divorce, illness, job relocation, interest rate increases require immediate sale of our homes. These are unfortunate events. We need to be sympathetic to these people and not judgmental. Life happens.

The Good Part.

Delaying buying now because you fear receding home values in the near future is understandable but not wise. The opportunity to buy at the bottom is near. We all want to buy low and sell high. When our grandparents and parents bought the “American Dream” of owning land and their own home, it was not about speculation and investment planning. They bought their homes to have a place to live, raise their families, establish roots in their community, be the King and Queen of their own castle. The value of owning their own home was community based not monetary based.  They wanted a stable life style, not a volatile speculative adventure of boom or bust. Equity appreciation was nice but was considered as a retirement issue. They stayed in the homes longer and obliquely watched the ups and downs of the home’s value. They didn’t care about the equity value because the home was not an asset to be played. Buying a home now is a great way to return to an era when going home after work was like entering your fortress, your safe zone..  We can close the front door, draw up the moat, and secure ourselves and our family against all ills and problems.  Homes are less expensive now than they were a year ago and the interest rates are historically cheap. Low prices and great interest rates are the values that you should not overlook. You are not buying at prices that are inflated. Prices are comparable to 2005. Your cost to borrow money is historically low. Your total costs to buy in 2005 were higher than they are today. Your costs like escrow and title and Realtor commission are the same as they were in 2005. Your cost to borrow the money is 4% compared to 6%. For those buyers who can take advantage of this part of the market cycle, they will be bragging about this good fortune for a long time.