Homeownership... still the American Dream

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The Builders Association of the Twin Cities answers questions about the Twin Cities housing market

Owning a home is a goal most Americans continue to strive for, but in today’s economy, many families are wondering if things have changed. Not long ago, everyone agreed that it was a sellers’ market—yet buyers were everywhere, hoping to get on the bandwagon while prices were appreciating at double-digit rates.

Today, that has changed. The sellers’ market has turned into a buyers’ market, so where are the buyers? Mixed messages from the media, concerns about the mortgage finance industry, and fear about selling an existing home have all played a part in drying up the real estate market. But the bottom line is that homeownership—or upgrading to a newer home—is still a great choice for many, many families today.

If I wait to buy a new home, won’t prices go down even lower?

Not necessarily. All the market indicators show that now is a good time to buy. Prices are down, interest rates are affordable, there are lots of homes to choose from, and you can bargain with sellers.

If you try to wait and time the market until it hits rock bottom, you may lose out. Just as no one can accurately predict the peaks and valleys of the stock market, the same holds true for housing. If you sit on the fence and wait for the absolute best deal, you could end up literally waiting for years.

But if you buy now, you will not only be in the driver’s seat during the buying process, you will see the value of your home appreciate once you become a homeowner. Homeowners who purchased homes during the last big economic and housing downturn came out as big winners. Successful, prudent investors purchase stocks, bonds, and property in soft markets and let them appreciate. To be a prudent investor yourself, you should take advantage of the current housing market and invest in your future now.

Is it better to wait until the economic picture is clearer, so my home will appreciate?

The fact is, the economy is still solid. After expanding rapidly over the past few years, economic growth is moderating—and this is actually good for housing. Most economists predict that overall GDP growth will average about 2.6 percent for the rest of the year. That means that job growth will continue to move forward at a pace that should not trigger higher inflation rates or higher interest rates.

This period of moderate economic growth, job creation, and low inflation, coupled with a true buyers’ market where there are plenty of homes to choose from, makes this an ideal time to purchase a new home.

Should I invest my money in the stock market or use it to buy a home?

Buy a home. Purchasing a home is by far the best long-term investment.

When you buy a home, you are leveraging your investment, or putting down a small amount of money to earn a big return. For example, say you use $10,000 to purchase a $150,000 home, and the house appreciates 5 percent during the first year. After one year, the house would be worth $157,500—a gain of $7,500. Your annual return on your $10,000 investment would be 75 percent.

By contrast, putting the same $10,000 in the stock market and posting a similar 5 percent gain would only net a $500 return on investment.

As a homeowner, your savings grow in two ways. Every year, a greater portion of your monthly mortgage payment goes to the principal, reducing the overall loan amount. Secondly, your home appreciates over time, making it one of the very best financial investments. Not only is homeownership a stepping-stone to a future of financial security, but it also helps to build neighborhoods and strengthen communities. It is truly the cornerstone of the American way of life, and the fulfillment of the American dream.

Should I wait to buy a home until interest rates go down further?

At the beginning of 2008, interest rates stood at about 6.2 percent—extremely favorable for buyers. In fact, they are hovering near 30-year lows. But waiting to time the market is a dangerous—and losing—game. Even those who follow the market for a living can’t figure out when interest rates will bottom out.

Because interest rates are near historic lows, it is much more likely that they will head higher in the future, as opposed to moving even lower.

Home prices don’t necessarily move in unison with interest rates. If you decide to roll the dice and wait to purchase a home, and the price dropped $10,000 from where it is today, you could still end up losing money. How? If interest rates were to move up a half point during this period, the reduced home price would still have a higher monthly payment over the life of the loan.

In short, the smartest and safest time to buy is now. We know that interest rates are low today. We know that home prices are down. We know that there are plenty of homes to choose from. We know that sellers are eager. Any or all of these favorable variables could change for the worse six months from today.

Should I wait to sell my house until I can get the same price my neighbor sold their house for?

No. It’s always better to trade up in a buyers’ market like the one we are in now; in today’s buyers’ market, higher priced homes are also dropping in price. So, even though your home’s value may have fallen, the price of higher-end homes has also dropped.

For argument’s sake, let’s say that your $300,000 home is now worth $270,000, and a $500,000 move-up home has also dropped 10 percent in value and is offered for $450,000. If you sold your home today and purchased the larger house, the difference in price would be $180,000.

If you waited until the value on your home increased and sold it at $300,000, chances are that the same move-up home would also move up in price to at least $500,000. So the price difference between the two homes is now $200,000, meaning you would pay $20,000 more for the same home. It’s also more likely that, by jumping into the market today, your savings would be even greater because consumers have much more bargaining power when shopping for higher-end homes in a buyers’ market.

Opportunity knocking

With all of the noise in the housing market, sometimes it is hard to hear opportunity knocking. A new online resource is available for Twin Citians interested in buying a home. OpenthedoorTC.com shares stories and blogs from local perspectives about what is happening in the Minneapolis-St. Paul housing market.

Mission: Impossible

So you’re ready to buy a new home—but what if that purchase is contingent on the sale of your current residence? The key to selling your home in a buyers’ market is to make it stand out as distinct and livable, and to trust the experience of a real estate professional to help you market your residence to potential buyers.

• Don’t cut corners with improvements, but don’t over-improve one room so much that, while it make look stunning, it reflects poorly on the rest of your home.

• Be aware of the media—not all the news about the housing market is bad, and many television and cable TV shows, particularly those on HGTV, are dedicated to helping sellers learn how to enhance their homes to boost marketability.

• Before you agree to work with a real estate agent, find out not just his or her track record selling previous properties, but ask how the property was marketed and what the agent did to find the right buyer.

• Price your home right the first time.

• Staging is everything, so work with a real estate agent who has access to a home stager.

Want to know more? Real estate agent Kelly Lucente expands on these tips, and offers valuable insight into how to sell your home in a buyers’ market in an Internet-exclusive feature on MidwestHomeMag.com.

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