All investments incur risk. Investing in this real estate market is no different. But, when you consider that the equity and bond markets have provided somewhat lackluster returns in recent months, and the amount that prices within the real estate market have fallen in the past several years, the proposition seems lucrative.
Is it time to invest? Maybe. As this study by Harvard University points out, demand in the short term may remain low, but proponents of taking advantage of the current market point to the following factors.
Low Prices: Prices are at historic lows. Despite the fact that no one can predict the market and whether real estate prices will go up any time soon, the fact is, real estate investing offers a tangible and useful asset to investor that can provide a place to live, or rental income.
Traditional Financing Is Back: ARM mortgages are at an all time low, with buyers and lenders like Aurora Loans alike wary of recreating the circumstances that led to the sub-prime mortgage collapse. This push towards the recreation of responsible lending practices means that although it may be more difficult to qualify, the terms of your loan are likely to be much more favorable over the long term.
Low Interest Rates: Aurora Loans and other lenders are currently offering the lowest interest rates seen in the last 50 years. In fact, average rates for a Fixed Rate 30 Year Mortgage are currently hovering around 4.375%, and rates for a Fixed Rate 15 Year Mortgage are currently near 3.375%. Compare this to mortgage rates in 2007 which were upwards of 6%, and it's clear that current interest rates can save you a bundle in the long run.
Interest Rates Will Rise: Economists predict that mortgage rates will climb to above 5% by 2012. The difference between current rates and predicted rate increases will result in huge savings over time for those who choose to purchase now.
Builders/ Owners Are Eager to Sell: No doubt about it, its a buyers market. The number of short sales and foreclosures remain well above historical averages, and with many homeowners under water or facing economic difficulties in a tough employment market, buyers can likely negotiate for a price well below asking, and come out far ahead in this weak market.
Despite the weakened condition of the current market, buyers should still consider the long term effects of buying a home, especially in a market that may not recover any time soon. If you are still on the fence over whether to buy or rent, check out our article Buy vs. Rent: When Does Renting Make Sense.
Photo By: John Hall and Associates