Tuesday, November 11, 2008

Now Is The Time To Buy A House

Read this Article from Washington Business Journal dated November 7, 2009. By Craig Stent

Friday, November 7, 2008
Now is the time to buy a house
by Craig Strent

Baron Rothschild famously said, “You buy when there is blood on the streets.” We all know there’s blood on the street right now. The stock market is on a daily roller coaster ride, unemployment is rising and we’re facing a potentially lengthy downturn in the economy.

The housing market’s blowup has been roundly blamed for leading us down this road, but it will also be the engine that drives us out of this mess. To understand where we are now, we have to understand where we have been.

Homeownership rates have skyrocketed in recent years, but it has not always been that way. While the Community Reinvestment Act enacted under President Carter in the late 1970s started us down this path toward higher homeownership numbers, the great push for homeownership really took off in the 1990s and has reached record levels in the current decade. Government support of Fannie Mae and Freddie Mac essentially amounted to a form of subsidized homeownership, which encouraged banks to make loans that they should not have.

Early in his term, President Bush championed what he called an ownership society” and challenged lenders to help increase homeownership. Wall Street responded with numerous new loan products structured as complicated financial instruments, slicing and dicing them into different categories in an attempt to measure risk and then offloading them as collateralized securities across the globe. Qualifying for a mortgage became an afterthought.

Risk-based pricing — a system where rates were adjusted depending on the buyer’s qualifications — took over, and all applicants could qualify as long as they were willing to pay. Indeed, with financing so easy to come by,
buyers flooded the market, the basic laws of supply and demand kicked in and housing prices soared.

We all know what happened next, which brings us to where we are now, in the midst a market gripped by fear.

Why should you not be afraid if you live in the Washington area? The federal government is about to pump hundreds of billions of dollars into the national economy, and many local companies will benefit. Federal spending under the new bailout plan is sure to play a large part in our local housing market’s recovery. Much of the new spending will be funneled toward the Beltway contractors that support the government. Law firms, commercial real estate brokers and service providers that support them will also benefit.

Add to this numerous other positive factors. Thousands of renters have been sitting on the fence for a while,hoarding cash and waiting for the right time to buy. Long-term interest rates are not far from their historical lows.
Housing inventory levels are still high, and sellers are more reasonable than they have been in years.

Prince William County, which has been racked with the region’s worst foreclosure rate and has endured the steepest drop in local home values in the past few years, is now drawing in buyers at a dramatically increased pace compared with this time last year. High inventory and low sales prices in the county are spurring the revival.

The biggest myth out there is that home financing has dried up and that you need a lot of money down to buy nowadays. Not true. With the federal bailout and takeover of Fannie and Freddie, we’ve got a pending influx of cash from the federal government, low interest rates, plenty of homes to choose from and sellers willing to help.

That sounds a lot better than competing with 10 other buyers and the seller extracting a pound of flesh in the process. Remember, you make your money in real estate when you buy, not when you sell. Now is a good time to buy.

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