ResalesIs 2003 The Year To Buy?
Could 2003 be the best year in real estate history?
If you had asked the question 12 months ago, the likely outlook would have been for a good year, something among the top five. But topping 2002 -- a year with record existing and new home sales as well as low mortgage rates looked improbable.
The other reason that real estate seemed due for a breather concerns consistency -- existing sales had been rising year-after-record year since 1996. A seventh good year seemed improbable if only because all good things must end at some point.
But 2003 is shaping up as an astonishing year after a string of astonishing years. We have huge budget deficits, a nation at war, and significant unemployment, yet home buying demand continues.
You certainly can"t overlook interest rates -- as low as 5.21 percent with .5 points in June, according to Freddie Mac. And while rates have increased since the summer, as of November 29th Freddie Mac says the rate for 30-year financing stood at 5.83 percent with .6 points -- down .20 percent from the previous week. By the standards of the past 40 or 45 years, rates are remarkably low.
Now the National Association of Realtors is reporting that "state existing-home sales activity in the third quarter was the highest on record, with 48 states and the District of Columbia posting increases from a year ago." A number of states have seen annual sale increases in excess of 20 percent -- Nevada is up 37.6 percent.
So is now a good time to buy real estate?
It"s amazing how often this question arises. And it is equally amazing how impossible it is to frame a proper answer. "Yes" or "no" certainly won"t do -- and here"s why.
For buyers the unstated inference is that we may now be at the top of the market -- "now" being whenever the "good time" question is raised. If we are at the top, then now is not a good time to buy because prices can only decline. For owners, the top is the very time to sell.
But homes which seem expensive today may look like bargains in the future -- what would you pay for a home in your community that cost $200,000 ten years ago? What is it worth today?
Alternatively, some price gains are not real.
Let"s say that the rate of inflation one year is five percent and the value of a $100,000 home rises to $104,000. Is the property "more" valuable? On the basis of cash, yes. On the basis of buying power, no -- inflation means you need five percent more dollars in this example to purchase what you could have bought last year. In real terms, the value of this property has declined.
The "good time" question asks if real estate in general is a good thing to buy, but no one buys real estate in general. Regional, state and national pricing trends may not reflect changing values on Elm Street. All properties are unique -- one reason a home sells in six days while a similar home next door does not sell for six months.
So is now the time to buy? Or sell?
I don"t know what the answer might be for any given property, but here are some general questions to ask:
Is the local population growing faster than the housing supply? If yes, prices are likely to rise, metro areas are likely to expand, or both.
Are interest rates attractive? As interest rates decline, the pool of possible buyers increases.
What are the investment alternatives -- not just stocks and bonds but the purchase of a business or the financing of an education.
How long will you own the property? There are costs to buy and sell real estate, so the longer property is held the less impact such costs have.
Can values be enhanced? Can you buy a property at a discount with repairs you can make or which can be made cheaply?
Can personal needs and preferences be met? Can you get four bedrooms if that"s what you need? Can you get a location which does not create a
five-hour commute?
Do you want to buy? There are perfectly-lucid and financially-able people who prefer to rent. Renting is an option, not a financial sin.
How would buying change your tax situation? Generally, a real estate purchase creates deductions for mortgage interest and property taxes which effectively reduce out-of-pocket ownership costs.
If you now own a home should you sell it or rent it? What is the local investment market?
Can you get good financing -- a mortgage that meets your needs now and can be repaid in whole or in part at anytime and without penalty?
Do you have strong credit? Better credit leads to cheaper rates, better terms and more loan program options.
So is now the time to buy?
I can"t answer the question for anyone else -- but I do know that the Millers are looking at some investment property in a nearby city which sure seems interesting....
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