Making the Case for Real Estate
Wednesday, January 19, 2011
Is 2011 the year you finally buy that dream house? The homebuyer’s credit that expired last year may not have been enough to entice you. Maybe you’re a Nervous Nellie that needs to see evidence of a turnaround in the housing market before you jump in. Or maybe you just weren’t in a position to buy, and now you have your 20% down and are ready to roll. Whatever the reason, you may have lucked into the perfect storm of buying conditions to get a house this year.
Prices
This is obviously the most important component, and it’s still heavily a buyer’s market. Most areas have seen housing prices drop lower than Rex Ryan diving after fallen food. The good news for buyers is that the listing price is just the seller’s first offer, and there’s often wiggle room once you’ve identified a house that you want. You’ve heard it before, but it’s all about location. Buying in Newport, Barrington, East Greenwich, etc. will pay off down the road because those areas have a proven demand for housing. Remember, your house IS an investment. It’s not meant to provide the same rate of return as a stock, but it’s an investment nonetheless. Treat it as such.
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The average interest rate on a 30 year loan is slightly higher than the end of 2010, but still extremely low by historical standards. If you can grab a 4.75% thirty year loan, hold onto that for dear life! Depending on your income tax rate, the after tax rate on your loan might be around 3%. With that rate, I’m borrowing as much as possible and not paying it back any faster than I have to.
Foreclosures
Government intervention has tried to stem the tidal wave of foreclosure activity, but the numbers continue to mount. 2011 may be the final year to really take advantage of pricing discrepancy on foreclosed properties.
Resources
The internet provides a bevy of resources, the most useful of which is Zillow.com. While I wouldn’t take Zillow’s appraisal estimate as gospel, it’s a good starting point to figure out property values. They provide useful historical information for individual houses and neighborhoods. You can also look up home information on tax assessor websites such as www.visionappraisal.com and www.appraisalresource.com.
Buying real estate in this market is not always a no-brainer. If you’re an investor, you can get stuck holding a piece of property that they intended on flipping due to the lack of demand and the high unemployment rate. If people aren’t working, they aren’t getting mortgages. But if you’re paying rent, it’s time to do a cost benefit analysis of putting those dollars toward a home.
Dan Forbes is a regular contributor on business financial issues. His office is in Providence, RI. He leads the firm Forbes Financial Planning and can be reached at [email protected]
