That’s right, I said the best time to buy real estate is now! For some people anyway. Fact is there are 3 types of home buyers and depending upon which type you are, now may be the best time to buy a home. Before we explore the 3 types of home buyers, let’s take a look at two factors making now a good time to buy a home
Mortgage interest rates – Current mortgage rates are at or below 5% which is a great deal. Chances are, with the pending demise of Fannie Mae and Freddie Mac, mortgage rates could begin to rise in 2011 and beyond and may not see the sub 5% rates again for a long time.
Home Values – In case you haven’t been following the real estate market lately, home values are seriously depressed everywhere in the US. Has the real estate market hit bottom you may ask. Nobody knows but according to The Standard & Poor’s/Case-Shiller 20-city home price index, home prices have risen 4.4 percent from their April 2009 bottom but remain 29.6 percent below the July 2006 peak. See graph below for a visual on how home values have done recently.
Now I know the graph above doesn’t lend itself to a very compelling argument to buy a home now but you must acknowledge that only the black line, which shows an amazing drop in home prices since 2006, is factual. The red dotted line is speculation.
That leads to my point above about the fact that depending on which type of home buyer you are, now may be the best time to buy a home. The 3 types of home buyers are:
1. Modern -
This type of home buyer typically switches house every 5-7 years. Some modern home buyers do it because they switch job and need to move every 5-7 years. Other people do it because they have a “roll your equity into a bigger home” mentality and every time they have enough equity to make a down payment on the next biggest home they can afford, the do it.
This type of home buyers tends to be wealthier and usually on the fast track at work. They are short term thinkers when it comes to real estate and they believe when it comes time to retire, they will be rich enough to either pay off any remaining mortgage they have or be able to keep paying a mortgage forever from their interest and investment income.
There are areas all over the country where home values are starting to rise. If you’re a modern type home buyer and you live in one of these areas, now may be a good time for you to start looking at homes again.
2. Investor -
This type of home buyer can be both a long and short term thinker when it comes to buying real estate as investors buy real estate for two reasons; cash flow and appreciation of assets.
For many investors the time to buy a property is when they can rent it out at or below the average monthly rent payment in an area and in most cases, when they can cash flow as a rental. Graph number 3 on my earlier post “5 Cool Real Estate Infographics” shows 10 cities where the average mortgage payment is currently lower than the average rent payment.
From the long term perspective, many real estate investors also see their cash flowing properties as part of their retirement plan. Imagine having other people build equity for you and after 10, 20 or 30 years of this, you have a ton of equity that you can either cash out or simply continue living of the cash flow, which really goes up when you own a property free and clear after renting it for 30 years.
For the investor type real estate buyer, especially those with cash, this may be the best time to buy real estate. At the very least depending on where you live and the current state of your local real estate market, it’s is definitely a good time to start looking. Let’s face it, foreclosures and short sales won’t be around forever.
3. Traditional -
This type of homeowner typically buys a home and lives there for a very long time. My parents have lived in the same home for over 35 years and so have many of their neighbors. This type of home owner typically plans on paying off their home before retirement so they can live mortgage and rent free in their retirement years.
Many traditional home buyers took advantage of the low mortgage rates of late to refinance into a super low 15 year mortgage so they could pay off their house even faster and maybe retire early.
These buyers are typically more conservative in their investment strategies and tend to be middle class more often than not. Or they are the people referred to in the book, “The Millionaire Next Door”
For the traditional home buyer, I believe in many markets, now is the time to buy real estate because;
- Interest rates are still very low,
- House prices are way down and clearly near the bottom in many areas and finally,
- Since you will be holding onto your home for the next 15 plus years, you’ll do just fine when you eventually sell your home.
So there you have it! Depending on which type of real estate buyer you are, I think the best thing you can do now is find a Realtor and start house hunting!
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