As home prices have plunged by almost a third since 2005 and homeownership rates are falling at the fastest pace since the 1930’s. Great news for buyers, two measures now suggest it’s an excellent time to buy a house, either to live in or as an investment property. The nation’s ratio of home prices to average rents is almost to its prebubble numbers. When the historical low-interest rates are taken into consideration, houses are the most affordable they have been in many years.
Whether buying is a better deal than renting is a changing condition that depends on the difference between prices and rents, the financing cost and other factors. But the math is absolutely turning in the buyers favor. For most home buyers, mortgage rates are a key determinant of their total cost. Rates are so low now that houses in most areas look like bargains.
The 30-year mortgage rate rose to 4.12% this week compared to 3.94% last week. The latest rate is still less than half the average since 1971. As a result, house payments are more affordable than they have been in decades. Interest rates were over 6% in 2005, the peak of the housing market. Let’s take homes in Davis,Ca as an example. A home purchased for $400,000 with a 20% down payment and a 4.12% interest rate, a buyers monthly payment would be about $1500, rent for a comparable home in Davis, California would be $1400 to $1700.
There are other loan programs that will allow less than 20% down payment, the FHA loan requires 3 1/2 percent down payment, so there are many opportunities, regardless of the immediate funds that a buyer might possess upfront. Lenders are more strict than they have been with their lending practices and rightly so. According to Stan Humphries, chief economist at Zillow. “If you have good credit, a job and a down payment, you can get a mortgage”. There’s more paperwork and scrutiny involved than five years ago, but things are much like the 80’s and 90’s.
A few caveats are in order, even in low-priced markets, buyers should shop carefully and prices could dip slightly. Most analyst are predicting prices to fall about 3%, before bottoming early 2012 and rising slowly thereafter. From that point if home prices start a normal trend of a 2% appreciation on a home purchase of $400,000, that would be an $8000 increase the first year.
When prices are low, loans are cheap and plump stock yields are scarce, buyers should jump before home prices and interest rates start rising. Please visit my web site at www.JohnnyBrooksHomes.com to view Davis,Ca homes for sale and helpful tips on buying or selling a home.