Have we hit the bottom of low home price values? The optimists keep saying we should see an improvement at the end of 2011 and into 2012. They might be somewhat correct, let's face it, they're talking a year down the road.
Today's low interest rates are tempting
Others are saying that the current low interest rates are another government ploy to keep buyers in the market. And they might be correct, depending on how low prices drop in the future. At today's current rates, you'd be better off with 4.5% interest rates vs. a 10% reduction at 6% based on an average home price of around $300,000.
How low will prices go?
No one can say for sure, but some are predicting closer to 20% vs. 10%. There are several reasons stated:
- interest rates will rise, keeping many buyers out of the market unless sellers reduce
- home prices are still too high, even with current price corrections - home prices are still outpacing income
- there will be many more distressed sales such as foreclosures and short sales coming down the pipeline
- unemployment is still too high
Will interest rates really go up in this economy?
I would love to think they will remain this low, but I do not see that happening. I've heard statements that they will rise to around 6%. I still think that is low; when I purchased my first home in the 1970's my interest rate was 10.5%, and we didn't blink an eye. The price of that home was just under $20,000! We sold it around 3 years later for the upper $40,000's. Interest rates were still around the same. In the early 80's (after a recession), interest rates fell to 8.5%, causing a seller's market!
Aren't foreclosures winding down a bit?
They might be down right now a slight percentage, but there are still future adjustable rate loans that are scheduled to reset. Some mortgage holders will not refinance into a fixed rate because their rates might actually go lower and some can't refinance since their home isn't worth what they paid for it. If interest rates go up next year then those buyers might not be able to afford the next reset. That will keep short sales and foreclosures coming.
Should we wait to purchase?
I just purchased a home at the beginning of the year. I am taking a loss on my resale Oak Lawn home. I purchased a foreclosure and although we are remodeling it, I feel we got a great deal. Even if the true value of my remodeled home falls 20%, we plan on living here for a minimum of 10 years, possibly more.
Although we feel we made a good investment, the reason we bought is because we outgrew our other home. We needed more space. Lucky for us, we found a home that is perfect for us and was a foreclosure that only needed cosmetic fix-ups/remodeling.
We felt the need to move and went for it. We are so happy in our Orland Park home. It's tough losing money on our resale home (and that's not even taking into consideration all of the money and work we put into it) that we lived in for 7 years, but it worked out for us in the end.
If you are currently renting and want to own a property, then with these low interest rates you should really consider purchasing now, before interest rates spike. Keep in mind, different towns will depreciate at different rates. There are many areas in Cook county that have already fallen by double digits. An average drop of 20% does not mean that figure will occur in every single town.
It might be a gamble to wait
No one can predict the future, but if you're ready to buy a property, you might regret waiting. Feel free to fill out my Automated Home Finder Form to see what's out there right now, while interest rates are so low.