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Fall May Offer Great Time to Buy Real Estate with Buyers Advantages - 2007-09-29 |
Most of us applauded the decision of the Federal Reserve to lower short term interest rates recently. It represented not only a shot in the arm to consumers, but also may have heralded one of the best opportunities for home buyers to make a smart purchasing decision this year.
Overall home sales are down substantially when compared to last year, and new home sales have been hit particularly hard. Here are some reasons that potential buyers might want to get off the fence and make a decision now:
* Long term rates are low today, and that might not last.
By historical standards, today’s long term interest rate is a bargain, and we can’t know what will happen to rates in the future. Even so, it’s unlikely that rates will get much lower than they are now, and they certainly have room to increase if our economy gains momentum.
The greatest expenditure for most buyers in the purchase of their home is not the purchase price. In fact, it is interest expense. So the interest rate has a direct and important impact on the overall housing expense that most of us incur. Locking in a low rate now might be a smart move.
As an example, let’s consider a typical purchase of a home that sells for $250,000. You decide to get the lowest interest rate possible, so you make a cash down payment of twenty percent of the purchase price - an amount considered large by current standards. After your $50,000 down payment, you are approved for a thirty year fixed rate loan at, let’s say, seven percent.
Your monthly principal and interest payment works out to exactly $1330.60 per month for 360 consecutive monthly payments. And if you simply multiply the monthly payment by the total number of payments required, you end up with the total of all payments made - that’s just over $479,000.
Next you subtract the original amount you borrowed - it was $200,000 - and you are left with an interest expense of over $279,000, a carrying cost that actually exceeds the amount originally borrowed. Higher interest rates increase that carrying cost significantly.
* Sellers of resale homes are motivated now.
With a record number of resale homes on the market, there are bound to be sellers who have tried and tried to sell their home, but have finally decided that the market simply will not bear their asking price at this time.
Those sellers have two choices. They can take their homes off the market and try again later, or they can lower their asking price to a level that will, in fact, attract buyers in the current market climate.
Leaving your home on the market month after month with little or no sales activity is a painful and unproductive tactic. And with the traditionally slower winter season just ahead, the current market demands realism from sellers who would see a sale sooner rather than later.
* Builders of new homes are offering extraordinary deals.
New home builders are suffering from the decline in sales just like everyone else, and they are combating the slump in a variety of ways. Each of those ways is designed to attract you.
Free upgrades, free basements, free closing costs, and loan buy-downs are among the incentives that builders are casting about like prizes in a box of Cracker Jacks.
In some cases, builders are still paying extremely high construction interest rates on their unsold inventory, and as time goes on, that can spell disaster. It may be worthwhile even to suffer a loss on the deal rather than face the prospect of losing the house to the lender in foreclosure.
According to Atlanta home builders, the metro area currently has an inventory of about ten months worth of new homes. That seems like a lot.
But that figure has been declining in recent months, and an inventory of six months worth of new homes is considered equilibrium. In other words, when inventory is at six months, there is a good balance between buyers and sellers. When that happens, the incentives we are seeing in this market will disappear.
* Home ownership builds wealth.
I’m cheating here a little bit, because this benefit of owning real estate is not exclusive to this market. But I believe it to be a reality, especially today, and here’s why.
Our society, more than ever, is a consumption-based one. We want what we want, and we want it now. And society tells us over and over that it’s OK to go into debt to get whatever it is.
Owning your own home is one of the very few expenditures you can make that has, historically, led to wealth creation. In fact, for most Americans, owning their own home has turned out to be one of the best investments they ever make.
At the very least, buying a house to live in and financing it with a low interest fixed-rate loan will almost always turn out to be a forced savings plan over a period of years, and it will probably be a much better experience than that.
The bottom line here is that there are compelling reasons to take another close look at the residential real estate market in metro Atlanta. If you wait too long, you may find yourself sitting on the fence long after your advantage has disappeared.
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Upcoming Events
BUYING FORECLOSURES IN GEORGIA
NEW for 2008: Bank-Owned Home Bonanza
This seminar has been updated and revised for 2008 to reflect the dramatic changes in the Georgia foreclosure marketplace. We are literally facing a flood of foreclosure properties, and there is profit to be made in each and every one of these homes.
Whether you want to build a portfolio of homes for your retirement or you simply want to find a better home for yourself and your family, this program is for YOU.
LAST CHANCE THIS MONTH!!
• Saturday, Oct. 11th, 2:00 P.M. until 5:00 P.M. - Renaissance Waverly Hotel in the Cobb Galleria
This COMPLETELY NEW SEMINAR examines the roots of today's foreclosure meltdown and explains how you can take advantage of this opportunity in your spare time.
Advance Tickets: $69; bring a friend for an additional $30.
Couples share materials.
Detailed information available under the “Seminars” button
This course approved for 3 hours of Continuing Education credit by the Georgia Real Estate Commission.
The Real Estate Investor's Institute will be held at Emory University on
November 22, 23 & 24, 2008. Make plans to attend.
Detailed information is
available under "Seminars."
This course is approved by the Georgia Real Estate Commission for 12
hours of Continuing Education Credit. Agents must bring license number.
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