A Good Time to Buy a Home?

By Steve Gillman - 2009

The most common question in the real estate market at the moment: Is it a good time to buy a home? You may be reading this years after it is written, when conditions have changed substantially, but there are always certain things to consider. So whenever you find this page, ask yourself the following three questions before buying.

What Are Home Values Doing?

The thing most people are wondering about now when they ask if it's a good time to buy a home, is whether prices have finally stopped going down. A home is seen as an investment of sorts, so we all like the idea of buying when values are going up. As of early 2009 (I'm writing this in April) home values not only are not rising in most areas, but seem to be falling still.

My wife and I just bought a house despite this. There are several reasons why we felt comfortable with out decision. First, prices don't seem to be falling much here (Canon City, Colorado). Foreclosures are dragging prices down a bit, but the market here is much more stable than in other cities and states. The fact that prices never rose too far too fast during the "boom times" probably has helped us.

That brings up an important point: Real estate markets don't act the same everywhere. To determine if a bottom is near or if prices are rising where you are, pay close attention to whether houses are starting to sell slower or faster. Quick sales usually mean prices will soon be rising.

We didn't buy counting on rising prices, however. That's not the only determining factor, and it seems the problems in the country will get worse and drive prices down 10% more - even here where we live. What else made us decide it was a good time to buy a home for us? Read on...

Where Are Interest Rates?

Right now you can get fixed rate 30-year mortgage loans at about the lowest interest rate in your lifetime (no matter how old you happen to be). The rate on our recent mortgage loan is 4.5%, and that's not a variable rate. It's a fixed rate for thirty years.

As long as you plan to stay in a house for a while, as we do, this really matters. For example, suppose you pass on a house that is selling for $200,000 and waited a couple years. Sure enough prices fall another 10% in your area. However, what if interest rates were up around 7.5% at that time? Perhaps you get the house for $180,000, with a principal-and-interest payment (assuming you have a 10% down payment and borrow $162,000) of $1,132 each month.

Now suppose you bought at $200,000 now, again with a 10% down payment. The payment on your $180,000 loan would be $912 per month. Think about that. You would be paying $220 more each month if you waited and bought the home for $20,000 less. Do the math and you'll find that although you saved $2,000 on the down payment you would pay $79,200 more in payments, for a total of $77,200 more over thirty years (assuming you stayed in the house that long). With a simple example like this you can see the importance of the interest rate.

What's Your Personal Situation?

A good time to buy a home? Consider prices and their direction, and interest rates too. But also think about where you are financially, and what your goals are. Is your income secure? Could you make the house payments for six months if you lost your job? Will you likely be able to find another job that will provide enough income to pay for the house if it comes to that? Will you stay in the area long enough to justify buying? (Renting will often make more sense if you will be moving within four years or less). They may be difficult questions to answer, but perhaps they are the most important ones in determining if it is a good time for YOU to buy a home.

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