On the Fence? Now is a Good Time to Buy your Next Property in Arizona.
In our local Greater Phoenix market, we are seeing a general “malaise” with both buyers and sellers. Buyers are feeling not so motivated to buy now, thinking that downward pressure on pricing will continue. Sellers are not so motivated either, holding out for the high prices they expect, remembering the good old days of 2006. Bringing these two parties together is what makes our market move, but what message do we send to our buyers and sellers now? Having recently read an article posted by MSN Real Estate which addresses this question, I want to share a few reasons we should be encouraged to make real estate decisions today, or at least soon.
Our clients often ask us if this is another “bubble”…the answer is no. Home prices in the Phoenix market have risen from the lower levels of the housing crash in 2008, but we are still 20-30% away from the manic pricing we saw in the pinnacle of the market in mid-2006. The S & P/Case Shiller Home Price Index shows overall U.S. home prices “currently at summer 2004 levels…In markets that are still recovering, first-time home buyers could see significant appreciation over the nest few years, if they buy now.” Our area was of course one of the hard hit markets, so as we continue to dig out, we know we still have a long way to go. Opportunities are definitely out there for the purchase of a property here in Arizona whether it be a primary residence, vacation property or investment property. Sellers can get a fair price, and buyers can still negotiate on contract terms, pricing and concessions.
Interest rates have been artificially low, with 3% and 4% levels offering buyers very attractive programs. With the Federal Reserve winding down its economic stimulus plan, we are expecting to see continued rises in rates with projections of 5% + by the beginning of next year, according to Ilyce Glink. People may not think this seems like a big jump, but look at the impact:
“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%, your monthly payment would jump to $2,115, and the total interest paid over the life of the loan would exceed $360,000.”
I shared in a past blog post the “Rent vs. Buy” calculator. Obviously our lives are not run by a simple calculator; there are many factors contributing to the decision. Your individual circumstances coupled with the availability of properties that meet your needs (or lack thereof) will obviously be the first considerations. In our Scottsdale area market, rentals are extremely tight. The availability of quality rental inventory at affordable prices is depressed, therefore making the decision to buy easier for many. Use this simple algorithm to figure it out for yourself. Does it make sense?
“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. If it’s below 20, chances are it’s a good time to buy.”
YOU CAN BUY.
“Americans have been steadily reducing their debt load…the lower your debt, the higher your 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% and 36% percent of your gross income in total debt service — that’s your housing expenses plus your other debt payments,” says Glink.
Credit scores will naturally improve as you pay off your debt. One of the largest factors lenders consider when evaluating the credit worthiness of an applicant is the credit score. It will play a big role in how favorable your rates will be.
In general, this is one of those rare times in our Arizona real estate market where it can be favorable for BOTH buyers and sellers. Without a wide swing in either direction, it should provide impetus for more transactions to come together, which will further aid in our housing recovery.