4 Signals It Might be Time to Buy (vs. Rent) Your Home

By Tara-Nicholle Nelson

 

To rent or to buy: what used to be a given – that you would buy a home as soon as you could afford to – has become an agonizing conundrum for many a would-be homebuyer, in the face of the housing market’s big bust and super-slow recovery. Low prices seem to create a wide-open window of opportunity, but they also create the concern that prices will keep falling after closing. And that Catch-22 has hundreds of thousands of buyers-to-be stuck on the fence.

Fortunately, there are handful of life, mortgage and local market signals which indicate that the time *might* be right to hop – scratch that – leap off the fence and into homeownership:

Mortgage rates are going up. Home prices have been low for the last several years, and in fact are currently looking like they’re heading back down to the same levels they were at the depths of the real estate recession. During this same time frame, interest rates have also been low – this one-two punch has created record-high affordability for the last four years running, causing buyers to believe that this window of opportunity won’t be closing anytime soon.

While prices don’t look like they’ll be skyrocketing anytime soon, interest rates are another story. Rates have been on a rollercoaster over the past few months, and with inflation and Fed rates set to spike later this year, today’s low interest rates might be as good as they’re going to get for a long time to come. And I mean a very long time – in the next few years, overnmental intervention in the mortgage markets is likely to wind down, and that means higher mortgage interest rates are not only inevitable, they’ll probably be here for a long, long time.

Mortgage rates on the rise are one signal that now might be the peak of home affordability, and the peak of the opportunity to buy. 

Rents are going up. Rental rates in many areas are also on the rise – in fact, the foreclosure crisis has acted created additional demand on many markets’ rental housing inventory in several different ways. First, former homeowners who lost homes to foreclosure now need to rent; as well, buyers in foreclosure hot spots have been hesitant to buy, many electing to stay renters far beyond when they would have otherwise. On top of all that, super-tight lending guidelines have stopped even some who would like to buy homes from doing so. As a result, rental homes are in high demand – and rents are rising.

Rising rents at a time when the prices of homes for sale are low and, in some places, falling? One more signal that now might just be the time to buy. (Of course, where foreclosures are high, the chances of continued depreciation are, too – to offset this risk, have a long-term plan, to minimize the possibility that you’ll owe more than your home is worth when you need to sell. Read on for more on how to plan for the long term and minimize your homebuying risk.) 

Your income and career are stable for the foreseeable future. The smartest homebuyers look to their lives, not just the market, for signals about when the time is right to buy. Homebuying is a long, long-term endeavor these days. The goal is to be able to commit to staying in the same place, geographically-speaking, for 7 to 10 years before you buy (more in a oreclosureriddled market, less in an area that has been more recession-resistant). Most lenders will require that you’ve been at your job – or in the same general field of work – for at least two years before you buy. But that’s the bare minimum – beyond that, you don’t want to be barely beginning a career in which you think you may need to move sooner than that, nor do you want to buy when you’re advanced in your career, but in an industry which is dying or downsizing the workforce in your region (unless you have a strong Plan B).

When you get to the spot in your career where you can realistically project a stable income 7 to 10 years out, life might be giving you a green light to move forward on your homebuying dreams. 

You can reasonably predict the home you’ll need in the years to come. Since successful homeownership requires that you be ready to be in the place for a good number of years,
best practice is not just to buy a home with the space and number of rooms you need right now – rather, you should aim to buy the home you’ll need 5, 7 or even 10 years down the road (to the best of your ability to predict, of course). You might be a newlywed with no kids now, but you plan to have them in a few years. Or maybe you’re a newly minted empty nester right now, but can project that you’ll want to retire – and might not want to climb two flights of stairs to get to and from your bedroom – 10 years down the road. Before you buy, you should be in a position to buy the home that meets your future needs – not just your current ones; and that requires that you have a reasonable idea of your life vision and plan for the future.

If you’re able to predict – and afford, at today’s prices – a home with the space, amenity and geographic location you’ll need 7 to 10 years from now, you might be in a good phase of life to get off the rent vs. buy fence.

With that said. . .buying a home is a massive decision and includes multiple, long-term financial and lifestyle obligations, so if one or more of these signals are present for you, that doesn’t mean you have the green light to run out and buy a home tomorrow –rather, it’s a good sign you should begin down that path, if you’re so inclined. You’ll still need to do the work to make sure your personal finances and holistic life picture are also in alignment before you buy, as well of the work it takes to ensure that your real estate and mortgage decisions are sustainable and smart, over the long-term.

It’s not overkill to check in with a mortgage pro, a tax pro, a local real estate broker or agent and a financial planner to make sure all your ducks – not just one – are in a row before you make your move.

5 ways sellers can compete with foreclosures

By Scott Van Voorhis of Bankrate.com

Risky foreclosures could help savvy sellers

The cloud over foreclosures comes with a silver lining for homeowners who are seeking an edge when they sell real estate in a strong buyers market.

The good news for sellers is that foreclosures look risky again. Savvy sellers — or those who have equity and are current on their house payments — could turn the tables and
use the robo-signing follies to their advantage, experts say.

“I am not seeing buyers afraid (yet) to buy a foreclosure,” says Elizabeth Weintraub, a real-estate broker in Sacramento, Calif. “They should be.”

The robo-signing controversy has led to a slowdown in foreclosures. The lull is likely temporary, and sellers’ advantage from a drop in foreclosures is potentially fleeting, with many markets still flooded with distressed properties, says Katie Curnutte, a spokeswoman for Zillow.com. There might even be a boomerang effect later this year after banks get back up to speed with auctions, she says.

Here are tips for home sellers who want to take advantage of a rare lull in the foreclosure crisis.

1. Sell sooner rather than later

If you don’t have to sell in this market, don’t. But if you must, take the plunge now.

Sure, the slowdown in foreclosure activity could mean less competition now. But you should account for a boomerang effect: The number of foreclosures is expected to skyrocket later this year.

2. Get your story out

Foreclosure sales used to be rare. But in some markets, they now comprise 20% to more than half of all sales.

If you are a long-term homeowner who has kept up on your mortgage payments, you must deliver that message. This is your key advantage over a lower-priced foreclosure, especially in light of the robo-signing mess.

Buyers will know from whom they are buying the home —no title issues here. You can get this point out tactfully in your ads with phrases such as “long-term ownership” and
“been in the family for decades,” Weintraub says.

3. Do your homework

Savvy buyers will come in with a stack of comps, or comparable properties, and many of them will be rock-bottom foreclosures. Provide your own market analysis, which can help highlight the challenges facing foreclosed properties.

The first report should be of comparable homes sold in the past few months, with foreclosures broken out separately, if mentioned at all, says Jim Kimmons, broker-owner of
Gallery Realty of Taos, N.M. The second should detail homes on the market now. This will help you frame the decision on favorable terms: Buyers should consider homes like yours instead of foreclosures.

4. Price aggressively without undercutting foreclosures

The aim is to sell your home, maybe with a small gain. Forget about making a killing. Few homeowners who are current on their mortgage can match a foreclosure price.

But buyers are still looking for low prices. Look at what other nondistressed properties are selling for in your neighborhood and set your price below them. Drive home the point that the price is the price — with foreclosures, a bank can take a better offer until the day of the closing, Weintraub says.

5. Burst those foreclosure fantasies

Many buyers haven’t a clue about what it takes to buy a foreclosed home. In many cases, individual buyers don’t stand a chance because they compete with investors who are ready to pay cash, Kimmons says.

If buyers or agents don’t know this, enlighten them.

“There is a significant percentage of buyers (who) could not buy a foreclosure if they wanted to,” Kimmons says.