Oct. 10, 2008
Why in the world would you buy a home right now? The financial markets are a mess. Foreclosures have grabbed headlines for a few years now. Mortgage restrictions are getting tighter. So what, exactly, are the reasons for jumping in and purchasing a home? I'll give you three.
As I write this column, average interest rates for a 30-year fixed-rate mortgage have dipped below 6%. That is a very attractive number. I know many Texas REALTORS® who have been in this business a while, and they remember times when loan rates topped 14%. Doing some quick online research (on Mortgage-x.com), I found rates for 30-year loans as high as 17% in 1981. In fact, rates were above 10% from about 1979 through 1986. I wasn't in the housing market then, but when my wife and I bought our first house in the 1990s, the best loan we could get was 9.25%.
So what difference does that make? A lot. Securing a 6% 30-year fixed-rate loan instead of a 14% loan gives you $82,394.29 more in your loan, assuming $1,000 monthly payments. Even the difference between a 6% and 9% loan gives you a hefty $42,509.74 bump in your purchase amount (once again with a $1,000 monthly payment). The point is, today's low interest rates provide you much greater purchasing power than many periods in the past.
Another good reason to buy a home is that Texas housing prices didn't skyrocket over the past few years. Since we didn't experience 20% annual jumps in home prices in our state, we also haven't seen a freefall in prices like you'll find in California, Arizona, Nevada, Florida, and a few other areas. This lack of volatility is one of the reasons that Mark Dotzour, chief economist for the Real Estate Center at Texas A&M University, believes that this is a good time to buy for Texans who plan to stay in their homes three or more years. (Listen to what he said.)
Increased scrutiny in mortgage-lending provides another factor in favor of purchasing a home these days. Yes, lenders have put additional constraints on mortgage products, but that should be to many people's benefit. If these same constraints had been in place over the past several years, many people would not be facing the specter of foreclosure.
Not that impressed with the last reason? I think it's valid, but it's OK if you don't; I'm going to give you a fourth reason: The foreclosure situation in Texas is not as dire as the headlines you've read. Texas foreclosures ranked only 20th among U.S. states in August, according to RealtyTrac. While the overall U.S. rate of foreclosure filings was 1 in every 419 properties, Texas had a rate of only 1 in every 849. Compare that to Nevada's 1 in 91. The fact is that California and Florida accounted for 39% of all foreclosures in the U.S. during the second quarter this year, according to a CNNMoney.com article.
I'll throw in a fifth reason, too. A provision of the Housing and Economic Recovery Act signed on July 30 offers a $7,500 tax credit for first-time homebuyers (defined as someone who has not owned a home in the last three years.) This credit essentially acts as an interest free-loan that you repay over 15 years.
Of course, your personal situation matters a lot — perhaps as much as the external conditions in the real estate market. If you're ready to buy, though, you can find several reasons to support your decision.
