Monday, March 22, 2010

IS NOW A GOOD TIME TO BUY A HOME OR CONDO IN THE CHICAGO AREA?

With the U.S. economy just beginning to turn the corner toward recovery, thousands of Chicagoans are asking: “Is now a good time to buy a home?”

Many prospective home buyers still are sitting on the fence, waiting to get the best deal possible, and worried that home prices may still decline a bit more this year. They could be right.

After three years of generally falling home prices, Yale economist Robert J. Shiller believes the decline will continue because there are fewer homeowners and investors in the mood to be speculators.

Shiller believes home prices currently are still too high on a historical basis as a result of the unprecedented 83-percent increase in home values that occurred between 1997 and 2006.

Meanwhile, other economic experts say regardless of where housing prices are today, eventually they will hit bottom, stabilize and start appreciating again at the beginning of the next real estate boom, hopefully within the next two or three years.

However, there already are some positive signs for optimism in the housing market this spring. Affordable home and condominium prices and a government tax incentive are motivating thousands of first-time home buyers to venture into the marketplace. Congress extended the $8,000 tax credit for first-time buyers through April 30th of 2010 for homes closed by June 30th.

However, you don’t have to be a first-time buyer to take advantage of the latest incentives from Uncle Sam. Existing homeowners who have owned a residence at least five years can pocket a credit of up to $6,500.

Other annual incentives of homeownership worth thousands of dollars are the tax deductions allowed by Uncle Sam for mortgage interest and real estate taxes.

What really may be the opportunity of a lifetime is the current cost of mortgage money. Benchmark 30-year fixed-rate home loans currently are near a half-century low.

In mid-March, lenders were charging an average of 4.95 percent on a 30-year fixed-rate mortgages, down from 4.97 percent a week earlier, reported Freddie Mac’s Primary Mortgage Market Survey.

Last year at this time, the 30-year fixed loans averaged 5.03 percent. Current rates are about a quarter of 1 percentage point higher that in December of 2009, when the benchmark rate set a record of 4.71 percent.

However, the way the Obama Administration is spending money, economists predict that interest rates will start moving higher by the end of 2010 or early 2011.

So, what’s the benefit if a home buyer takes out a $300,000 mortgage today at 5 percent interest, versus 6 percent interest next year? The savings would be $188 a month, or $67,680 over the 30-year life of the mortgage.

To really appreciate today’s historically low home-loan rates, housing experts say home buyers need only to look at what banks and mortgage lenders where charging in October of 1981 when rates peaked at a record high 18.45 percent during the last great recession. Rates fell below 10 percent in April of 1986, and then bounced in the 9-percent to 10-percent range in the late 1980s.

Historians say long-term mortgage rates were a very affordable 5.81 percent to 5.94 percent between 1963 and 1965. In 1966 and 1967, borrowers paid an average of 6.3 percent to 6.4 percent. In January of 1968, the national mortgage average hit 6.41 percent. Between 1971 and 1977, rates bounced in the 7.6-percent to 9-percent range.

Through a series of dips and up-ticks, rates have averaged 4.71 percent to 8.4 percent over the past 15 years.