The news has been pretty gloomy on the housing front so far this year: The S&P/Case-Shiller 20-City Home Price Index lost 3.1% in the year ending in January, and other measures were down as well. The Mortgage Bankers Association reported a 1.7% decline in purchase applications this month.
But pundits always tell you to buy at the bottom of a market, so you may be wondering: Is this a good time to purchase a house?
It's hard to get a straight answer to that question. If you ask a real estate agent or a banker, they'll tell you with a smile that it's a great time to buy. Then again, they said the same thing back in 2007.
However, independent analysts now also are saying that the sweet spot for buying may be coming up in the next few months.
Phil DeMuth, an investment adviser and the co-author of a new book on investing,The Little Book of Alternative Investments, says it's a great time to buy. "Housing prices are where they were in 2002 and you've got mortgage rates at 5% now on a 30-year mortgage," he says. "If you can put the 20% down and qualify for a good mortgage, I'd say this is an excellent time to take that kind of position."
Grab Those Low Mortgage Rates Now
Anthony Sanders, a professor of real estate finance at George Mason University in Fairfax, Va., says he is more cautious about the outlook, but thinks there may be a buying opportunity in late summer.
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"In August, if the Case-Shiller Index is showing some good action and we have a rally, I would feel pretty good," Sanders says. "But don't let someone say it's almost at the bottom -- wait until it comes up a bit."
DeMuth says one of the attractions of buying in the next few months will be that mortgage rates are very low at the moment, with the potential of going sharply higher.
"It's tough to forecast interest rates, but I generally like the look of things when you're buying at historic lows, especially when a lot of people think we're going to be seeing more than a whiff of inflation coming," he says.
He sees the current interest rate situation as a win-win situation for the potential buyer: If rates go up, in a few decades, inflation will have made the mortgage payment relatively small. If rates continue to go down, you can always renegotiate the loan or pay it off.
DeMuth says he recently met with billionaire investor Warren Buffett, who said he disagreed with the prevailing view that houses don't beat inflation. Buffett noted that the value of his own house had gone up much more than the inflation rate.
The Benefits of Renting
Sanders says he's concerned about the very large number of houses still in foreclosure, which he put at 1.8 million. As those homes come back on the market, they will tend to put downward pressure on prices.
"The big problem is that housing prices just keep dropping ," Sanders says. "There is a lack of demand for housing right now."
He says that while mortgage rates might be lower now, if they go up in a few months, that could have a negative impact on the entire housing market and cause prices to fall further. "You may get a cheaper rate today, but you may also get a house that's deflating in value," he says.
Sanders says he is a fan of continuing to rent because the housing vacancy rate is currently at 18%, which has made a lot of homes available for leasing. And if you're young and likely to move within a couple of years because of job demands, the transaction costs of buying a home will outweigh the benefit of lower prices.
'The average person stays in a house only about six or seven years, so you have to have some belief that prices will be relatively constant over that period so you don't take a big loss," Sanders says, "Right now, the housing market is sitting on a ledge and it could go either way -- it could go up, which is good, or we could be in for a double dip."
It's almost impossible to time the bottom of a market, but the consensus seems to be that if you are settled in your life with a good job and a family in a community that you like, consider buying something this year, if not right away.
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