Should you buy a house now?
It has long been an article of faith among Americans that home ownership is a sure path to financial stability. But with home prices in big cities like Phoenix and Miami down by roughly half from their peak in 2006 (and in major markets overall, down 28 percent), not to mention a lackluster economic outlook, does it make any sense whatsoever to buy a home now?
The answer is the old one–it depends on where you buy and how long you’ll stay put–but these days, it’s really true. The time when you could buy a home and be assured of a windfall when selling two years later was an aberration of the housing bubble, which resulted from annual price appreciation as high as 10 percent. Now, expecting to sell at a tidy profit within even a decade may be risky. “Renting is getting more of its day in the sun, after a long period when buying a home had more cachet,” says Stan Humphries, chief economist at real estate website Zillow.com. “We got caught in the bubble,” says Rey Weldert, a scientist who recently took his house in La Grande, Ore., off the market after watching it languish for two years, even after he dropped the price by more than $100,000 to $279,000–about what he paid for it in 2006.
Still, with interest rates at historic lows and prices so depressed, cautious and realistic house-hunting now can be a good move, says Humphries, who foresees home values hitting bottom early next year. “It’s a perfect time to buy, if you can get financed,” says Kevin Bennett, 32, a computer entrepreneur by day and a waiter by night. He and his wife, a pharmacy technician, have just bought a bank-owned four-bedroom, two-bath house in a nice Indianapolis neighborhood for $85,000, well below the median price of a home in the city.
The couple, parents of a toddler, have rented for the past four years but watched over the summer as the price of this home was slashed repeatedly. After attending a seminar offered by the nonprofit Indianapolis Neighborhood Housing Partnership, Bennett took steps to improve his credit score, which helped the couple qualify for a 4.5 percent fixed-rate loan. Their monthly payments, including taxes and insurance, will run about $750, compared with the $900 they were paying in rent. “We’re buying low,” he says. “It’s a good investment.”
Looking ahead, Humphries predicts that homeowners are in for several years of below-average price increases–perhaps 1 to 2 percent annually–as markets recover from their hangover. Only after that might housing return to its historical trend lines, which would mean price appreciation of 2 to 4 percent a year, at most, over the longer term. The notion of a home as a place to live, rather than as a source of cash, is coming back into vogue, says Chris Herbert, director of research at Harvard University’s Joint Center for Housing Studies. “We’re going back to normal,” he says. “Which is, you put your money in, and you don’t touch it.”
http://finance.yahoo.com/news/Why-Its-Time-to-Reconsider-usnews-1925249973.html?x=0