Guide Me Home to North Jersey

It’s true- many potential home buyers are questioning if they buy now, will it be a mistake? The truth is, no one has that proverbial crystal ball, but there are a few reasons that point towards buying now instead of waiting. Waiting for what? Higher prices and higher mortgage rates?

Let’s look at the price of stocks vs. homes and their Return on Investment (ROI) over the past 8 years beginning 1/1/2000. Steve Harney of Keeping Current Matters has analyzed a $100 investment made 8 years ago and compared its value as of 12/31/2008. His research shows that an investment of $100 in the Dow would be down 19%, the same investment in the S & P would be down 35%, and the NASDAQ would be down 59.9%. However, real estate showed a positive 69.8% ROI over the same time period.

Now, let’s look at prices of homes in five year periods beginning in 1980. The average increase was @ 26-27% per five year period up to 2000. But, from 2000 to 2006, prices showed an 89% increase! Of course we are experiencing a correction- the rate of appreciation was unsustainable and buyers refused to pay those prices. The correction began in late 2005 and will cumulatively correct as much as 24% by 2010 nationally according to Jeff Otteau of The Otteau Report. Assuming that is true, we are close to the bottom.

You ask- when is the bottom? That is impossible to say, but history shows us we will not know when we have hit bottom until the prices start to rise, and by that time, it will be too late. Make an offer- you may hit bottom! However, if you don’t buy at the lowest of the low, take a moment to look back at the 8 year ROI. A strong case could be made that a 69.8% ROI on real estate, plus or minus a few percentage points is acceptable.

Now, let’s look at mortgage rates. Currently we are looking at between 4.5 and 5%. This is because the bailouts are keeping the mortgage rates low, according to Steve Harney. But this can’t continue based on history. Since 2003, the rates have gone under 5.7% only 5 times (source: Federal Reserve and Steve Harney). Again you ask, when is the bottom? It’s impossible to say exactly, but, we do know that after those 5 lows, the rate at which the rates went back up was steep and sharp!

These statistics point in the direction of “Buy Now”. At Turpin Realtors, we are seeing bright spots where well-priced homes are on the market for a very short amount of time. Low interest rates and properly priced homes combined with a savvy buyer and a motivated seller equals a winning formula!

Posted by: Mary Jane Benedetto

While the real estate market is slow, there are three bright spots that are working in a buyer’s favor. Lower prices and lower mortgage rates are two well-known factors. But the tax credit that is available for first-time home buyers is not as well-known or understood. This law is far more advantageous to first-time home buyers than the first law that was passed in 2008 since it doesn’t require the credit to be paid back if you keep the home for three years.

Following is a brief summary and explanation of this positive factor. This writing does not pretend to discuss all qualifications, specifics, and provisions of the law and should not be used as any type of legal or tax advice. (As with all legal and tax related issues, you should consult your tax preparer or lawyer before doing anything).

Congress passed an $8,000 maximum tax credit in February in The American Recovery and Reinvestment Act of 2009. The credit is equal to 10% of the purchase price of the home up to $8,000. If you buy a home over $80,000, you can still qualify, but partially. This Act applies to purchases (transfers of title) of a home (primary residence) from 1/1/09 to 11/30/09 for all first-time home buyers as identified in the law.

Qualified buyers must meet income restrictions. Single buyers can earn up to $75,000 annually and joint tax-return couples can earn up to $150,000 annually. Buyers earning over that may qualify for a partial credit. Your tax preparer can give you specific information.

This is the time to buy!

Posted by: Mary Jane Benedetto