Words to get a buyer off the fence and BUY in this Market.

I got this from my Mortgage Broker Heidi Odish and I had to share it with you as it really brings up the points about why people should buy. In all markets, we want to buy at the bottom. But as I have said in the past, the smart money knows when to buy and it is doing so. I see it all day long with investors back in the market buying up foreclosures and market funds out there scooping up big blocks of stock even though the stock market is having a rough ride. These are the times that SMART INVESTORS want you to think it is a bad time to buy while they go around and scoop up things at great savings.

A Good Time to Buy

With all the negative news about the housing and mortgage industry, many people are waiting to see what happens before they make a decision to purchase real estate. However, the time is right to purchase property NOW. There are three reasons why the time is right.

Interest Rates

Interest rates on mortgages have fallen substantially over the past 30 days. Rates on conforming 30 year fixed loans ($417,000 and below) have been ranging from 5.25% - 5.50%. Rates on Jumbo loans (amounts above $417,000) are also very good. For example, the rate on a 7/1 Jumbo Adjustable Rate Mortgage is currently at 5.50% with a 20% down payment. That means the 5.50% is fixed for 7 years before the loan converts into an adjustable rate mortgage.

Rates usually get better when the housing market and economy slow down. The interest rate markets typically anticipate what will happen in the future, so if the markets feel we are heading towards a recession, rates decrease. Many times they decrease before we actually get into a full recession. The same is true as we come out of a recession. The markets anticipate that we are going into a recovery and rates start to increase. In a lot of cases, when the Fed aggressively cuts interest rates, (as they are doing now) this actually causes mortgage rates to start increasing, because the markets believe that the aggressive cuts by the Fed will begin to spark the economy. Generally, by the time the public hears that the economy is starting to recover, rates are already moving up in anticipation of a recovery and they miss the bottom of the interest rate market.

Rates are now at levels that we have not seen since 2003, when rates hit all time lows. In 2003 and other periods when rates hit all time lows, these rates only lasted for a couple of weeks. Therefore, the “bottom” of the interest rate market is generally short lived.

It is important to understand that saving 1.00% to 1.50% on your interest rate today will save you thousands of dollars the first 5 to 7 years of your loan. These savings can be much greater than what you save by waiting for prices to drop further on real estate. Therefore, waiting for prices to decrease could actually cost you more in the long run if rates are higher when you find that “great deal”.

Mortgage Programs

During the last 8 months, we have lost many mortgage programs and it appears that underwriting guidelines for certain mortgages will continue to tighten. This means it will get harder for people to qualify for mortgage programs in the future. Therefore, if you wait to see what happens with real estate prices, a loan program that would be perfect for your situation today may not exist tomorrow. This is something that I always discuss with the agents that I work with to remind their clients. When the clients ask me what I think and if it is wise for them to wait another 6 months, I always advise that ultimately it is their choice, but they may be risking the possibility of completely being out of the market with special programs that they are pre-approved with today that may be eliminated in the near future. Programs that otherwise would enable them to get into the market at the current time. This is especially the case with a declining market and the fact of the matter is that San Diego is currently determined to be a declining market.

Market Timing

The third reason the time is right to purchase real estate has to do with market timing. Everyone would love to “buy at the right time”, meaning when prices are at the bottom. Whether it is stocks, bonds or real estate, we all want to buy low. However, it is very hard to know when prices have hit bottom.

Let’s look at the current real estate slow down as an example. By the time news of the real estate melt down was being broadcast by the media, the melt down was already in full swing. Many mortgage companies were already out of business, houses were not selling and prices were falling. These things were all happening for several months before the general public became aware there was an issue.

The same is true when the real estate market begins to recover. By the time the media begins to talk about real estate recovery and the general public learns that things are improving; prices are already on the rise. As a result, it is very difficult to “time the market” and buy at the bottom.