First Time Home Buyers and The Housing Market

Written by Linda Kay

When I look around and listen to the mainstream media calling the housing bubble bottom-out and enticing would be home buyers into the market with low interest rates, government backed incentives, and claims we have hit the bottom, it makes me wonder what reality “viewers” are living in.

If you are a first time home buyer, take some good old fashioned financial advice.  The best time you can buy, is when interests rates are high and home prices are low.

Here is a simple example.  A $500,000 mortgage at 5% is roughly $2500 per month after your tax savings (not counting property taxes or hazard insurance, but that’s another story).  If rates go up to 10%, that very same loan now costs about $4500 per month.  If the market can only support a $2500 per month mortgage payment, how will you ever be able to sell your home?  You won’t, not at the price you paid for it, even if you could afford it.  That $500,000 mortgage would have to drop approximately 40% to roughly $300,000 in order to maintain the cost per month. Wait for interest rates to skyrocket because they surely will.

If I were a first time home buyer, and living though this current economic crisis, I would be holding on to my money and waiting for interest rates to start rising before I took the plunge into a market that will likely NEVER AGAIN see the kind of escalation in values as that of the housing bubble.  The current mentality is that “Ohhh, we have to buy now, because we don’t want to miss buying at the bottom”…we are a few years off of the bottom.

Another point supporting this position is considering the economic turmoil states are currently facing regarding revenue and the huge cuts being made in services and education just to balance current budgets, the next looming factor many have yet to consider is the even steeper declines in revenue generated from property taxes.

Foreclosure rates continue to rise, I live in Florida and read that 1 in every 142 houses is in foreclosure.  That number is staggering.  What is going to happen when those taxes are due for 2010?  There will be more fiscal and economic hardships on States already struggling to balance their budgets with already historically high levels unemployment not seen since the 70’s and they are still climbing.

If you are a first time home buyer and have been prudently saving in order to invest and buy a home, look around at what’s happening and stay in “waiting.”  It’s going to get worse before it gets better.  The good old days are long gone and the frenzy right now to spend in this current disaster is fueled by those who have created and profited from all the delusionary hard selling that drove the housing bubble in the first place.