These days, there seems to be no shortage of depressing housing news. Prices continue to fall, as do home sales, and there’s a significant backlog of foreclosures waiting in the wings. As you might expect, this combination has led to some great home-buying opportunities. Many prospective buyers are choosing to wait and see how low prices will go, and that’s understandable, but if you’re thinking seriously about homeownership, this might be a very good time to make your purchase – that is, if your personal finances are in order. No matter what the market looks like, or how low prices seem to be, if your credit standing doesn’t qualify you for a good interest rate, or your income and budget can’t support the mortgage payment you’d be taking on, you have to wait. It’s that simple.
The current housing market has scared off a lot of buyers, but many experts believe we’ve reached the bottom of the decline, or we’re close to it. The S&P/Case-Shiller Index indicates that prices have declined by more than 30% since the housing peak in 2006. That’s certainly an alarming statistic; however, that drop-off may have been more of a correction than anything else. If you recall, prior to 2006, home prices were increasing almost exponentially, a pace that would have put home prices out of anyone’s reach before long. Something had to give, and, in retrospect, we all should have known that the housing bubble would burst before too long.
But it wasn’t just prices that needed correcting – our attitude toward homeownership had become distorted over time. Owning a home should never be taken lightly, but a significant portion of the boom-and-bust cycle we just witnessed was caused by rampant speculation – that is, buying a house in an effort to get rich quick, rather than as a substantial long-term investment. Although it still holds true that housing process generally rise over time, the goal of homeownership should be based on the need for adequate shelter. More than anything, a house should become your home. It’s the place where you raise your family, create lifelong memories, and find comfort. As we’ve learned, when we take homeownership lightly and fail to analyze whether the purchase is appropriate and beneficial to our financial circumstances, we’re inviting disaster.
So is this a buyer’s market? Well, many experts believe that, although home prices may fall a few more percentage points, it won’t be anything like we’ve witnessed over the last few years. The low interest rates on mortgages are also encouraging, and they should remain that way for the foreseeable future. Also, as you’ve probably noticed, due to the growing inventory of foreclosed homes, there are some fantastic deals to be had. If you’re in the market for a dream house, now may very well be the best time to start shopping.
However, there are some other factors that you have to consider first. For one, there are millions of homeowners who owe much more on their house than it is currently worth. If this describes your situation, being upside down makes it virtually impossible for you to trade up in this type of market. Even though rates are low, the original mortgage obligation makes it difficult to sell your property without a loss. In addition, there is a shadow inventory of homes that are still waiting to come through the foreclosure pipeline. That’s because many lenders adopted shoddy foreclosure procedures, allowing their employees to “robosign” documents without actually performing the required review beforehand. This doesn’t mean that those homes won’t eventually be foreclosed on. It just means there’s more paperwork to do before the foreclosure can occur, and right now, with prices as low as they are, most banks are in no rush to take possession of another home. But they will, eventually, and that could actually help keep home prices down for a prolonged period. While that sounds like a good thing, it may also persuade lenders to maintain their tightened grip on credit, until stability returns to the housing market. In the meantime, if your credit isn’t ideal, you should use this opportunity to do everything you can to get it in better shape. There’s no doubt about that.
So if you’re thinking that now may be a good time to become a homeowner, do yourself a favor and talk to a housing counselor from a HUD-certified housing counseling agency, such as Cambridge Credit Counseling. It’s probably the most important step that you can take in the homeownership process. Not only will your counselor help you develop a budget, they can also give you valuable advice on how to address credit issues and ultimately help you create a plan to get a mortgage that works for your situation. To find an agency near you, please visit HUD.gov. Until next time, I’m Thomas Fox for Cambridge Credit Counseling.