You might not make a ton of money, but you’re unlikely to ever score a better deal.
Is now the right time to invest in a house? Trick question. Actually it’s two questions. Question 1: Is now the time to buy? Questions 2: Is buying a house a good investment?
The first answer is easy: With a few exceptions, if you have 20% to put down and good credit, now is a great time to buy. That’s been the case all year, and I’d argue that we’re probably closer to the end than to the beginning of the really great time. Let me explain.
Back in January home prices had dropped 28% from their peak. More important, interest rates were at historical lows. By locking in a mortgage for 15 or 30 years on a value-priced home, you were getting an incredible deal, even if home prices decreased. At the time I thought that prices and rates were more likely to rise than fall. I was half right: Home values have been inching up since the spring, but mortgage rates, incredibly dropped further.
By August the median home price had risen 1% over a year ago, but 30-year rates had dropped a half-point to 4.5%. Assuming 20% down and a 30-year mortgage, the total cost of owning a median-priced home is now down $16,000 from a year ago. Home values may waffle over the coming year, but because Americans take out such large, long mortgages, rates are what really matter. It’s far more likely that rates and the cost of ownership will rise.
Now for question #2: Is a home a good investment?
First, it depends on what you mean by investment. If your definition is strictly about dollars returned, a house probably won’t be a great use for your capital. If you bought the median-priced house today with 20% down, to recoup your total costs over three decades, the home would rise about 3% a year. That’s likely, but you almost certainly will do much better in the stock market. The fact is, however, that that’s the normal case for housing; the booms that began after World War II and in the late 1990’s were the exceptions.
Of course, there are places where you might do better. A smaller, energy-efficient housing in cities or inner suburbs around San Francisco or Chicago is likely to be in higher demand than big, outer suburban homes with long commutes to Las Vegas or Atlanta. According to urban and environmental planning professor William Lucy of the University of Virginia, this move toward urbanization in American housing is the reversal of a trend that’s been in place since 1945. Keep in mind when making your buying decisions.
That said, the key point to remember is this: Buying a fairly priced home at today’s rates may be the best deal you will ever get. And who knows? It may even turn out to be a good investment.
Keep checking RuhlHomes.com for the most up to date information on the real estate market!
Provided By: CNNMoney.com
