Buying a house: 5 reasons to do it now, and 5 reasons to wait
By By Mary Umberger
|Special to the Tribune|
May 10, 2009 | 12:00 AM
Housing students, which of the following is correct?
Buy a home now -- you'll get a great deal.
Don't buy now -- house prices are dropping like a rock, and you'll do better later.
Umm, both? Neither?
For consumers, this is a push-pull moment: Bombarded with contradictory opinions and data about the housing market, it's difficult to gauge if we're "there" yet -- whether real estate's free-fall is ending or whether it has a lot further to slide.
In any case, prices and mortgage interest rates look very attractive, indeed.
"People who missed the train now are starting to see that the train has backed up and they may be looking at a golden opportunity," said Lynette Briggs, a housing counselor for the DuPage Homeownership Center in Wheaton, who said she was surprised by the high turnout, despite the recession, for her organization's annual homebuyers fair in February.
But she cloaked that optimism in "ifs" -- the opportunity to buy a house now could, indeed, be golden if the buyer has a job, has good credit, has good savings and plans to stay in the house for a while.
The decision to purchase a home is always fraught with pros and cons. For two sides of that tricky coin, turn to Page 3.
5 reasons to buy now1. There's a vast selection.
One of the big drags on housing throughout the downturn has been the sheer number of homes for sale -- but that's the very thing that makes this a buyer's market. Although the inventory of homes for sale here has dropped since 2008, Midwest Real Estate Data, the principal home-listings service in the Chicago area, showed nearly 85,000 houses, condos and townhouses listed in early May. And that still-high number doesn't include many for-sale-by-owner properties and builders offerings, according to Mark Reitman, market manager for Redfin, a Chicago brokerage.
And that's not the whole story on inventory: Many builders don't list their completed "spec" homes in the multiple-listings service. Then, of course, there's the increasingly large stockpile of foreclosed homes that have been taken back by lenders and also haven't found their way into the MLS.
"It's undoubtedly the best selection I've seen in at least a decade," said Jim Merrion, regional director at Re/Max Northern Illinois, based in Elgin.
2. Homes are on sale.
In March, Illinois climbed to 10th place among states with the greatest home-price declines, on a list compiled by First American CoreLogic, a housing analyst that found that prices in the state had dropped about 10 percent from the year before.
The Illinois Association of Realtors said the median price for a single-family home in the Chicago area was $194,000 in March, down nearly 22 percent from the year before. And that's quite a price cut since September 2005, the month generally agreed to be the peak of the housing boom, when the median was $270,000.
3. We may be near the bottom of the market decline.
This may be the most contentious -- and most important -- consideration in housing. Every economist, every trade group and seemingly every blogger out there has an opinion about whether housing is done tanking and is poised to return to some degree of normalcy.
Few are shouting "It's over!" but some areas of the country and some parts of the Chicago area report sales are up.
For example, the number of homes under contract in west and south suburban areas was up 27 percent in March, the fourth consecutive month showing a year-over-year contract increase, according to the Main Street Organization of Realtors, which pronounced it an "upward trend."
Forecasters at PMI Mortgage Insurance reported in April that they believe the national market scraped that long-sought bottom in the first three months of the year.
And if we're not at the bottom, we're reasonably close, many observers say. They suggest that trying to time a home purchase with prices at their very lowest is a folly comparable to trying to time the stock market.
"You can never catch a bottom, whether it's stocks or houses," said Joe Harowski, a financial planner with Smart Choice Financial Planning in St. John, Ind., and Chicago. "Those who wait for it end up buying higher up the pole."
Others agree. "If I'm spending, say, $180,000 for a house, maybe it's still got $20,000 worth of wiggle room going down," Briggs said.
"But you have to ask yourself if you could rent for the same amount and have the same quality of life over a period of years," she said. "There is an intangible value to home ownership."
4. Uncle Sam is feeling generous.
First-time buyers (or those who haven't owned a home for at least three years) who close on a primary residence by Dec. 1 are eligible for a tax credit of 10 percent of the purchase price, up to $8,000 and subject to income limits.
"It's working [to draw buyers into the market], but my perspective is it's not working as well as it should because there are people who don't understand how it works," Merrion said. Nonetheless, he said more shoppers are starting to mention the tax credit as a reason for buying. (More information on the credit is at federalhousingtaxcredit.com.)
5. Mortgage interest is on sale too.
Currently, 30-year, fixed-rate loans are holding steady at about 5 percent, though they've flirted with the 4.8 percent level in recent weeks.
"There's going to be a little upward pressure, but generally, rates are going to stay flat," said Jay Jacobson, branch manager for Wells Fargo Home Mortgage in St. Charles.
Although mortgages with low down payments are scarce these days, the Federal Housing Administration has filled that void by offering to insure loans that meet their standards with down payments as small as 3.5 percent, he said.
5 reasons to wait1. We're not at bottom yet, and prices will fall further.
For many housing-market bears, their growl isn't getting any softer.
"Any future recovery will come in fits and starts, and will take time," said Mike Larson, real estate analyst for Weiss Research in Jupiter, Fla., discussing a disappointing report on March housing starts. "Nothing in the latest data, especially the weak [building] permitting data, suggests an imminent turnaround."
And the foreclosure monster hasn't finished its rampage, according to RealtyTrac, which studies foreclosure data.
It said Illinois placed fifth in the nation among states with the highest filings in the first quarter of 2009.
RealtyTrac said 1 in 135 homes in the state had filings on defaulting loans.
The company said rising unemployment is driving the numbers higher, and the loan defaults are spreading farther from the core of the main metropolitan area.
2. You need to stay in the house a number of years.
Those fondly recalled days of a quick sale are mostly gone, housing watchers say, so homebuyers should be ready to stick around in order to come out on top financially. In addition, if prices drop, you're less likely to recoup what you have put into the house.
"I tell people, if you're going to sell in one to five years, you probably ought not to be buying," Briggs said.
3. It's hard to keep up with a mortgage when you're unemployed.
Illinois' unemployment hit 9.1 percent in March, the highest level in about 24 years.
"Job security and unemployment are the next biggest barriers [after general anxiety] to people [feeling comfortable about] the market now," said Re/Max's Merrion.
He said that although auto dealers have aggressively promoted layoff-insurance plans to court buyers, and a few homebuilders and realty firms have extended similar offers, "it's something that hasn't been addressed by the housing industry."
4. Renting isn't a crime
"It's a great time to be a renter right now," said financial planner Harowski. "They're bending over backward to have somebody rent who has income."
Chicago landlords are doing somewhat better than the national average, but the deals and advantages to renters are still out there, according to Judith Roettig, executive vice president of the Chicagoland Apartment Association.
Apartment vacancies nationwide increased by 1 percent in the first quarter of this year, according to real estate research firm Reis Inc.
At the same time, about half of all apartments reduced their asking prices, with overall rents dropping about 1 percent, the firm said.
But like housing, the rental picture varies by market, and sometimes by submarket; Roettig said rents actually have risen in some parts of the Chicago market.
But enticing concessions, such as a month or two of free rent are more common now, she said.
5. Financing is more complicated than it used to be.
Generally, mortgage standards are considerably tighter than during the boom, requiring higher credit scores and a stable job and credit history, and larger down payments.
But so-called jumbo loans, above $417,000, still carry a premium interest rate that deters many buyers, Wells Fargo's Jacobson said.
And loan standards are tighter for many condos, where lenders worry about the effects of individual foreclosures on whole buildings.
FHA-insured loans, as mentioned, may be a saving grace for low-down-payment borrowers, but they're not for everyone.
There are loan limits for FHA insurance, and many condo buildings haven't acquired FHA certification and aren't eligible for the insurance programs, Jacobson said.
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