Chance Gates' Blog

Image by Getty Images via Daylife

The current market presents some of the most favorable conditions for homebuyers in years, particularly for first-time buyers.

Why is everyone nagging you to buy a house these days?

When real-estate values were crashing — prices dropped nearly 33% from the second quarter of 2006 through April 2009 — renting that apartment was darned savvy. And since home values are projected to drift lower in 2010, getting into the market now may seem like financial suicide. But the truth is, even the worst housing slump since the Great Depression can’t remove the long-term benefits of homeownership.

Meanwhile, the combination of lower prices, cheap mortgage rates and a special tax perk from Uncle Sam has produced some of the most favorable conditions for homebuyers in years. And without the need to unload one property to purchase another, first-time homebuyers are in a position of particular strength this year.

Although the real-estate bust wiped out nearly $6 trillion of housing wealth through November 2009, the financial advantages of homeownership remain. “When you own a home, you are slowly but surely building strength in an asset that you can utilize to your great benefit at some point,” says Keith Gumbinger of HSH.com, a publisher of consumer loan information. Homeowners who accumulate enough equity can borrow against the property to put Junior through college, or they can sell it down the road to purchase that retirement bungalow in Boca Raton, Fla. And federal tax breaks make home mortgages less costly than other forms of debt. “It is a long-term forced savings plan,” Gumbinger says.

Meanwhile, the housing meltdown and the federal government’s response have created some compelling reasons to consider jumping into the market this year. First, lower prices make buying more tempting. By late 2005, breezy credit and speculative fervor had pushed the national median home price to median household income ratio — a key measure of real-estate affordability — to more than 2.3, according to Moody’s Economy.com. That’s significantly higher than the 1.9 average for the 15-year period that ended in 2003. But by the third quarter of 2009, plunging prices had dragged the ratio down to 1.67. And although Mark Zandi, the chief economist at Moody’s Economy.com, expects an additional 10% decline before prices hit bottom late this year, the likelihood of a sizable drop is much smaller today than several years ago. “The risks to all homeowners are much lower now because house prices are a lot lower,” Zandi says. “You’re not going to see the kind of price declines that are really going to cause you problems.”

Mortgage rates are sitting near all-time lows, with 30-year, fixed mortgage rates falling to an average of 4.88% in November from 6.09% a year earlier. And while they’re likely to increase, rates should remain attractive throughout 2010, experts say. If that’s not enough, Uncle Sam is handing out tax credits worth up to $8,000 for qualified first-time homebuyers who close the purchase of a primary residence by the end of June. “You have got some of the best housing affordability conditions in many markets that (buyers) have seen certainly in their lifetimes — and perhaps even their parents’ lifetimes,” says Mike Larson of Weiss Research. “If you are not encumbered by a previous home you are trying to sell, this is great for you.”

Jobs first. Many Americans are taking advantage of these conditions to become homeowners, with first-time homebuyers accounting for more than half of home sales in November. But as we learned during the housing bust, “because everybody’s doing it” is a terrible reason to buy property. Instead, would-be buyers must first determine whether it’s the right time for them. And that means they must take a critical look at their employment situation. Although the economy is showing signs of life, the national unemployment rate stood at 10% as the year began, and it is projected to move higher. Since a steady income stream is essential to homeownership, only those with sound job security should pursue a home purchase.

• MSN Money: 5 keys to finding housing bargains

Second, remember that all those headlines about the national housing market aren’t nearly as important as what’s going on in the area you are looking to buy into. The trajectory of home prices will vary a great deal from one place to the next. Home values in Tacoma, Wash., for example, are expected to increase more than 40% over the next five years, while prices in Atlantic City, N.J., are projected to fall more than 10%, according to Moody’s Economy.com. Markets with a diversified economic base of faster-growing job providers — like high-tech or business service firms — are in a good position to experience growth in employment, population and wages, says Celia Chen, senior director of housing economics at Moody’s Economy.com. Such factors will help stimulate housing demand and juice property values over the long term.

A market’s current pricing trends are important as well. Although the housing bubble popped more than three years ago, prices in some markets remain significantly higher than fundamentals suggest they should be. Homes in Asheville, N.C., and Portland, Ore., are more than 20% overvalued, according to IHS Global Insight. To determine if buying today makes financial sense in a given market, check out the local rental stock. “If you can find houses in that market that are renting for considerably less (than what you would pay each month to buy a comparable property), then you are in a marketplace where it still makes more sense to rent,” says real-estate analyst Jack McCabe.

As a Reno – Sparks real estate consultant I encourage all questions or comments on the Reno – Sparks real estate market or any of the articles I post.

Current homeowners buying a house between Nov. 7, 2009, and April 30 and who have used the home being sold or vacated as a principal residence for five consecutive years within the last eight can qualify for the $6,500. It seems less is known about the repeat buyer credit. This incentive was added when the original $8,000 tax credit for qualified first-time buyers, which expired Nov. 30, was extended.

Houses purchased for $800,000 or less are eligible for repeat buyers. Single buyers with incomes up to $125,000 and married couples up to $225,000 may receive the maximum tax credit for both repeat and first-time purchases. The credit decreases for buyers who earn between $125,000 and $145,000 for single buyers and between $225,000 and $245,000 for home buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Buyers earning more than the maximum are not eligible for the credit. If a binding written contract to purchase is in effect April 30, the purchaser will have until July 1, 2010 to close.

The 2009 credit for first-timers helped jump-start the sagging home market in the summer and fall, data show. Walt Molony, a National Association of Realtors (NAR) spokesman, said two million existing-home sales in 2009 could be attributed to the $8,000 first-time buyer credit. Although it is too early to measure the credit’s effect on sales so far this year, Molony said NAR chief economist Lawrence Yun believes it will add 1.5 million sales to the tally.

The repeat-buyer credit was added to appease builders, who said the original did not offer enough time to purchasers of new houses, which take at least six months to build, to close on them. New homes accounted for only 7% of the tax-credit-based sales, Molony said.

The National Association of Homebuilders’ Donna Reichle said, “We hear builders saying they are getting inquiries, but that’s all so far. According to our economists, it’s way too early,” Reichle said. “If you look back at the passage of the original $8,000 credit and impact on housing starts, it took a couple of months, and that was in the spring as well.”

Moody’s Economy.com chief economist Mark Zandi says the credit will boost sales “modestly,” however, by 300,000, with one-third trade-up buyers. “I don’t expect the credit to be extended again,” Zandi said. “Each time it is extended, it becomes less effective and thus more costly.”

David Krieger, senior vice president and general manager of Coldwell Banker Preferred in Philadelphia, says he believes that “a very large increase in our listing inventory in January is a result of the $6,500 credit.” Still, the $8,000 first-time credit remains the chief reason his company’s home sales were 33% higher last month than in January 2009, he said.

Typically, repeat buyers are better off financially than first-timers, so a lot of repeat buyers realize from the start they don’t qualify for the credit, Weichert Realtors agent Alec Schwartz said. “What they do realize, and what is getting more sellers to list, is that they understand that there are plenty of first-time buyers who qualify for the $8,000 credit out there, and they have a much better chance of selling their house and buying a new one than before,” said Schwartz, Liv Mansfield’s agent.

This is also true in the region’s new-home market, said Wayne Norris, regional sales manager for Hanley Wood Market Intelligence. “Builders have experienced increased activity in recent months” attributable to the $6,500 credit and “the fact that many potential buyers were able to sell their houses” to those taking advantage of the first-time buyer credit,” he said. The sense of urgency to make the tax-credit deadline and fears of rising interest rates will push new-home sales higher in the spring, Norris said.

(c) 2010, The Philadelphia Inquirer.

In the Reno/Sparks real estate market, I’m finding most of the  houses being sold for less than $200,000  are getting multiple  offers submitted on the property.

As a Reno/Sparks real estate professional, I encourage all questions or comments on the Reno/Sparks real estate market or any of the articles posted.  I can be reached by email at  chance at ballard-company.com or http://www.myspace.com/chancegates