A combination of market factors
may make you think you're getting priced out of the home market. But one
observer believes first-time homebuyers might want to consider making a move.
"I know it's hard to face
rising interest rates and rising home prices at the same time," says Ilyce
Glink, real estate expert and managing editor of the Equifax finance blog.
"The good news is there’s still plenty of a runway if you want to buy a
house this year."
Glink believes first-time
homebuyers should consider these five good reasons to buy a house before the
end of the year.
1. Home prices are still off their highs
Yes, home prices are rising from
the lows seen during the housing crash of 2008, but they're still nearly 20
percent off their mid-2006 peak. According to the S&P/Case-Shiller Home
Price Index, average U.S. home prices are currently at summer 2004 levels. In
markets that are still recovering, first-time homebuyers could
see significant appreciation over the next few years, if they buy now.
2. Interest rates are expected to keep rising
Interest rates are slowly
climbing, and as the Federal Reserve concludes its economic stimulus plan,
rates are expected to continue to rise. Some experts believe mortgage interest
rates could hit 5 percent by the end of 2014 or the first quarter of 2015, according
to Glink. And even a small bump in interest rates can mean a significant jump
in your monthly note.
"If you're offered a 4.2
percent interest rate on a $400,000 mortgage, for example, your monthly payment
will be $1,961, and you'll pay more than $300,000 in interest over the loan's
30-year term," Glink says. "If your interest rate were 4.9 percent,
your monthly payment would jump to $2,115, and the total interest paid over the
life of the loan would exceed
$360,000."
3. Rental rates are rising
There is always an argument to be
made regarding whether to buy or rent. It's all a matter of your particular
situation – as well as the status of your local housing market. If you need to
be mobile — prepared for job transfers or out-of-state promotions — or are
continuing to search for "the perfect place," renting is probably
right for you.
However, if you would like to put
down some roots, and rents are high in your hometown – it might be cheaper to
buy.
"Divide the list price of
the home you're interested in by the annual rental rate of a comparable
property to determine the price-rent ratio," Glink advises. "If it's
below 20, chances are it's a good time to buy."
Housing still too expensive despite positive
signs
Of course, buying a home means
more than a mortgage. Remember to consider the other built-in expenses:
maintenance, insurance, taxes and utilities.
4. Buying power
Americans have been steadily
reducing their debt load. Maybe you have, too. The lower your debt, the higher you’re
buying power. Creditors will consider your debt-to-income ratio – how much debt
you have, compared to your gross (before-tax) income.
"Experts generally agree
that you can spend between 28 percent and 36 percent of your gross income in
total debt service — that's your housing expenses plus your other debt
payments," says Glink.
5. With lower debt comes a higher score
As you pay off student loans,
credit cards and consumer debt, your credit score will improve. And that's one
of the biggest factors mortgage lenders consider when determining the interest
rate and terms of your loan.
"You should definitely
consider buying this year, because it's unlikely the housing market will look
much rosier next year, when interest rates and home prices could be even
higher," Glink says.
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