Posted on December 19, 2008 by dhstevens
By Linda Stern
December 22, 2008 (Newsweek Magazine) - Sunday Open Houses are starting to look a lot more attractive, and it’s not just because the sellers baked brownies and slapped on another coat of paint. Since 2006, the peak of the housing boom, prices have dropped nationally by 18 percent and the rates on 30-year fixed mortgages have fallen from 6.8 percent to 5.5 percent. That means the average monthly mortgage payment has dropped from more than $1,000 to $894. The bottom line? Says Rich Arzaga, an independent financial adviser who teaches real estate investing at University of California, Berkeley, “Money is cheap, the homes are affordable, and sellers are really very desperate.”
That doesn’t mean you should run out and buy a house today; you can take your time to find the perfect home. The market is likely to bump along the bottom for a while, say analysts, and some markets may not hit their absolute rock-bottom prices for weeks or months-or even, in some vulnerable markets, years. But if you’re a first-time home buyer or a preretiree looking to line up your place in the sun (and you’re lucky enough to be able to afford one in this economy), start shopping now. Here’s why.
Good deals for snowbirds. Retirement hot spots like Florida, Nevada and Arizona have been particularly hard hit with falling prices. There are more than 21,000 homes for sale in Vegas; more than 5,000 in Boca Raton, almost 15,000 in Phoenix. That means lots of choice and room to bargain on price. If you’re intending to move to one of those areas, it makes sense to vacation there this winter and start checking out the market. In the three to five years it takes you to relocate, prices and rates are likely to solidify. There are already signs of slowing inventories and firming prices in some spots, like San Diego. But be careful: if you buy into a condo development that has many empty units, you can expect your monthly condo fees to rise significantly, to cover all those no-shows. And don’t count on rental income in those communities-in-crisis.
A bird in the hand. Don’t wait for the government-backed 4.5 percent rate that Treasury Department sources floated recently. It may never materialize, what with opposition from troubled banks and existing homeowners, and skepticism that it is the economic tool most needed now. Current rates are grazing their 45-year lows as it is, says Keith Gumbinger of HSH Associates, a mortgage-research firm. And they are as likely to head back up as they are to fall further.
Free money. First-time home buyers who ink their contracts before July 1, 2009, can claim a $7,500 tax credit to help them muster up a down payment. It’s really a zero-interest loan, repayable over 15 years with your annual income taxes. First-time home buyers can also withdraw money from their Individual Retirement Accounts penalty-free (but not tax-free) to make a down payment. They can also take some tax-free money out of their Roth IRAs to buy a home.
But some serious prep work is in order. As the sick housing market heads into typically slow winter, there’s time to amass a down payment (10 percent is good, 20 percent is much, much better) and get your low credit score up over 680, the new minimum level to qualify for a decent loan now. First-time and second-home buyers should take their time to explore what’s out there, and an extra moment to enjoy the one other advantage they have now. They can buy when they want, without worrying about selling a house in this market.
