by The KCM Crew on January 4, 2011 · 9 comments

in For Buyers,Pricing

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If
you are thinking about purchasing a home right now, you are surely
getting a lot of advice. And most of that advice is probably negative.
Why buy now with prices still falling? Don’t you realize real estate is
no longer a good investment? Don’t you know that people who bought five
years ago lost their shirt? We understand the concern your friends and
family have. However, let’s look at whether or not now is actually the
perfect time to buy a home.

There are three questions you should ask before purchasing in today’s market:

1. Why should I buy if house prices are still depreciating?

We believe that in most parts of the country prices will in fact
soften in 2011. Price is the major concern for anyone selling a home.
When you are buying, COST should be your primary concern however. Your
monthly payment (cost) is definitely impacted by the price of the home
you purchase. The other major component is the interest rate. Waiting
for prices to bottom out while rates are increasing can wind up costing
you more over the life of the mortgage (see chart here).

Over
the last seven weeks, rates have increased over 1/2 a point going from
4.17 to 4.86. Looking at the attached chart shows this increase. Waiting
for prices to bottom out seems to make perfect sense. Yet, at a time
when rates are increasing, it might NOT make sense. Make sure you have a
mortgage professional help you with this math before making a decision.

In an article last week CNN Money reported:

“You can kiss those record lows goodbye,” said Greg McBride, chief economist for Bankrate.com.

Keith Gumbinger of HSH Associates, a provider of mortgage information said that the market reached a new plateau.

“I don’t think we’re going back to a 50-year low anytime soon
without an economic collapse,” he said. “Rates will probably never
revisit those levels.”

2. When will I begin to see appreciation if I buy now?

This is a great question. Macro Markets, LLC is a company that studies housing prices. They started their Home Price Expectation Survey
in 2010.  They ask 100+ housing industry experts to project housing
prices through 2015. The most current survey shows that the experts are
predicting prices to soften until 2012. The experts then project prices
to rise reaching a cumulative appreciation of over 10% by 2015.

Purchasing a home today makes great sense from a financial
standpoint. Think of the old axiom: You want to buy low and sell high.
We may be at the low point regarding the COST of a home. But, this
decision should not only be a financial one.

That leads us to our third and final question:

3. Why am I buying a home in the first place?

This truly is the most important question to answer. Forget the
finances for a minute. Why did you even begin to consider purchasing a
home? For most, the reason has nothing to do with finances. The Fannie Mae National Housing Survey shows that the four major reasons people buy a home have nothing to do with money:

• A good place to raise children and for them to get a good education
• A place where you and your family feel safe
• More space for you and your family
• Control of the space

What non-financial benefits will you and your family derive from
owning a home? The answer to that question should be the reason whether
you decide to purchase or not.

Bottom Line

The COST of a home will probably remain relatively unchanged even if
prices continue to depreciate. Don’t allow money to get in the way of
you making the right decision for you and your family. In the long run,
the finances will work in your favor anyway.

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