Why it’s the Best Time in the Last 50 Years to be a First Time Homebuyer

When home-prices peaked in the United States at around the end of 2006, real estate investors were making scores of money and it seemed that many first-time homebuyers were being priced out of the real estate market. The rate of growth on home prices substantially outpaced the rate of average pay-increased and made it very difficult for those starting out to buy a home. Many relied on sub-prime loans to borrow more than they could realistically afford while keeping a relatively sane payment (at least, before their payments adjusted).

Eventually there was a realization that there were simply far more homes available on the market than there were consumers to buy them up and prices began to decline. No one has argued that it hasn’t been a buyer’s market since the middle of 2007, but many fail to recognize just how much of a buyer’s market that it actually is right now. It’s probably the single best time to buy a home since the real estate market has evolved to what we know it as today.

Interest Rates

At the end of the 1970′s, consumers would be lucky to get a fixed-rate mortgage at 15%. Just a couple of years ago mortgage rates were sitting at 6.75%. If you have a reasonable credit score and take out a 15-year fixed rate conventional mortgage, you can get a home loan at about 4.25% in today’s market. The reality is that you’re really not even paying 4.25% because the interest rate that you pay is tax-deductible. You’re actually paying a lot closer to 3.2% when you consider the tax-deduction that you’ll get on the interest that you pay to the bank. This is perhaps the cheapest money you will ever borrow in your life. If you’re going to get a home, get a 15 or 30 year mortgage and don’t pay it off a dime early unless you’re crazy about being completely debt free.

First-Time Homebuyers Credit

If you haven’t owned a home in the last three years and purchase a home between today and December 1^st of 2009, you will qualify for an $8,000 refundable tax-credit. It’s actually a 10% tax-credit of the value of the home up to $8,000, so if you buy a home that’s worth more than $80,000 you’ll get the full amount. It’s important to recognize that this is a refundable tax-credit, so even if you end up owing nothing to the government, the government will write you an $8,000 check next April to spend as you please. It’s the equivalent of them giving you $8,000 cash for buying a home. There are some income limitations, so make sure that you consider them when buying a home and expecting to get this tax-credit.

Affordable Home Prices

In many “boom” real estate markets, such as Las Vegas, Phoenix, Miami, San Francisco and San Diego prices have fallen 40% from their peak in July of 2006. There are a lot of great bargain homes available right now. The prices that we are seeing right now is about the equivalent to what you might have been able to purchase back in 2003 before a lot of the real-estate price inflation occurred. There are a lot of great deals in purchasing real estate owned by banks (known as REO’s) and in other foreclosures if you can find an expert to help you walk through that process.

Improved Home-Value Growth

Like many other investments, the real estate market goes through a “business cycle” of growth and retraction. Prices will increase for a period of 5-8 years then they will tend to decrease for about 5-8 years. At the end of the day your home value will likely go up substantially over a long period of time, but if you buy a home when prices are really depressed, you can see a lot more initial growth in the value of your home than if you had purchased a home when real-estate prices were inflated. This means you will be building equity quicker and be able to drop private mortgage insurance (PMI) quicker than you might have otherwise.