Is this a good time to buy or sell a home?

April 14th, 2009

I’ve been asked by a number of people whether this is a “good” time to buy or sell a home.  In my opinion there’s not a way to answer that question and have the answer apply to a broad spectrum of people.  There are just too many variables that apply on an individual basis for a blanket answer to apply whether the answer is “yea” or “nay”.

But I can cite some factors that should go into the calculations of any potential home buyer or seller and how they relate to the current market.

A big positive factor right now is interest rates.  Yesterday, I saw quotes for 30 year conforming fixed money at 4.75% with a one-point origination fee.  To put that rate in perspective, we purchased our first home in 1977 and were delighted to get a 30 year fixed rate mortgage of 8.25%.  In 1985 we made another home purchase and got an excellent rate (for the time) of 11.5% fixed.  Current 30 year fixed rates are at or near their lowest in over 35 years and there is no guarantee that these rates will hold at this level for long.  While mortgage rates are not directly tied to the 30 year Treasury Bonds, the market does demand a risk premium over Treasuries for mortgage loans, and if the rates on Treasuries start back up, mortgage rates will likely follow.  And with the amount of funding the U.S. Treasury is going to be doing for the foreseeable future in order to cover the huge deficits that the federal government is racking up in their ongoing effort to lessen the effects of the current down-turn, I would not be at all surprised to see Treasury and mortgage rates start rising sooner rather than later.

Here in North Texas, we’ve been fortunate to escape the huge amount of over-building that took place in some parts of the country (especially California, Arizona, Nevada and Florida) and our local economy has also held up well by any measure relative to other parts of the country, including the unemployment rate, job creation, and diversity.  That does not mean that we have been unscathed by the recession–we just haven’t seen nearly as severe an effect here as in some other locales, and I’m hopeful that we will continue to avoid the worst of the effects.  The local real estate market is fairly balanced with an approximate 5 month supply of homes for sale locally according to recent reports.  That is surely a major reason why our home prices have held up well, with flat prices or slight drops in value occurring in many area neighborhoods over the past year or so.

Of course home prices could fall further.  So could interest rates.  Prices could also increase and interest rates could as well.  A more important question, in my mind at least, is how do you look at your home?  Even though I’ve sometimes made money on the sale of my personal homes over the years, I don’t look at my home in the same way I look at other investments.  To me, a home is a place to raise my family, provides shelter, and offers a sense of permanence.  Even though I’ve been a Realtor for almost 20 years ( and was directly involved in real estate finance and construction prior to that) I’ve always looked at my personal home in this way.  Affordability has always been key–the fact that you can qualify for a huge mortgage doesn’t (in my mind, at least) mean that you should take one.    I’ve always wanted to be in a position to be able to pay my bills even if my income level dropped significantly.  I just feel more comfortable living below my means and feel strongly that having a good margin of affordability in a mortgage payment is a wise course of action, as is having a good amount of money set aside for the proverbial “rainy-day”.

Of course “huge” is a relative term.  If you’re a multi-millionaire, a mortgage payment of $10,000.00 or more a month isn’t all that large relative to your available resources.  On the other hand,  I know a number of people who own their homes out-right.  Did you know that over 30% of the homes in this country do not have a mortgage?  I think that’s a very significant number, and one that the news media seems to almost never get around to mentioning when discussing the home market.  Keep that percentage in mind the next time you see one of the doom and gloom newscasts.  My Pappy has a saying which comes to mind; “Figures don’t lie, but some liars can figure”.

The bottom line, from my perspective anyway, is we all have to live somewhere.  And where ever that “somewhere” is, there’s a cost.  I believe buying a home with a fixed rate mortgage that costs you a reasonable amount relative to your income and assets is an excellent way to take a degree of control over that cost over time.  And if inflation comes roaring back (I’m not saying it will, but I’m sure concerned about it with the way the printing presses are running at the Treasury!), having a home that you own out-right or with a low fixed-rate mortgage like those being offer at present, will be an excellent way to keep your cost of “shelter” at a reasonable price.

The last bout of high inflation we had back in the early 1980’s saw the price of that little custom house we bought in 1977 double in just seven years.  If we’d been renters during that time, or had taken out a floating rate mortgage, we would have seen our cost of shelter increase dearly.

There are a number of other factors to consider when thinking of buying or selling a home–I’ll discuss some of those in my next post.

Best Regards,

Will Richardson

MBA, RE/MAX Hall of Fame

RE/MAX Town & Country

214-543-7600-cell