There is a lot of talk of gloom in the housing market these days but 65% of people still believe it’s a good time to buy a home. According to Lawrence Yun, the National Association of Realtors’ chief economist, there’s been more high-end homes sold. There has been a drop in vacant rentals and more existing homes sold even though the government reports that new home sales have dropped 11.2%.
The big question is whether it’s profitable to buy a house at this time. Will the homeowner be able to sell the house without a loss? Dean Baker, co-director of the Center for Economic and Policy Research, suggests not buying a house unless you are planning to stay there for at least 5 years. He thinks that if you wait a year to buy you will be able to get a big discount. If you are looking for a home for your family for years to come there’s less to worry about than if you’re an investor just out for profit.
There are a couple ways the economists determine if the markets are overvalued:
1. They look at the ratio between annual rents and local home prices. If the average rent is 15 times less than the average home price the prices will probably come down.
2. They compare income growth with home prices changes. Since the late 90s home prices have been more than earnings. The economists’ research indicates that prices might drop another 15% because the income to home prices ratio is still high.
Of course there are others that disagree and think the market will stay low, but stable. That means no big profits, but no big losses either.
Home buyers need to consider many things besides just the investment value:
- Will they be there for a while?
- How much do they want their own home?
- What fits their lifestyle the best?
- What can they afford?
Even the area you live in should be a factor in your house-buying decision. Tacoma, Washington is predicted to have a price increase and places like Texas and the Midwest are more stable than Seattle or inland California. Consider well and get what works best for you.
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