PARAMOUNT MORTGAGE - LENDER'S BLOG

With about a week left in 2010, homebuyers looking to purchase in 2011 may be asking “Is now the right time to invest in a home?”

Actually, this is two questions. Question no. 1: Is now the time to buy? Question no. 2: Is buying a home a good investment?

“The first answer is easy,” states Ali Velshi, CNN chief business correspondent. “With few exceptions, if you have 20% to put down and good credit, now is a great time to buy.” This has been the case throughout 2010.

“Back in January home prices had dropped 28% from their peak. Interest rates were at historic lows”. If you locked in a 30-year mortgage on a value-priced home, “you were getting an incredible deal, even if home prices decreased.”

By August the median home price had “risen 1% over a year ago, but the 30-year fixed rate dropped to 4.50%. Assuming a borrower put 20% down on a 30-year mortgage, the total cost of owning a median-priced home fell $16,000 from a year ago.”

Homes are a bargain right now, but for how long? Prices and mortgage rates are low, but absolute steals will get harder to come by in 2011.

 
 

Home values may waffle over the next year, but because Americans take out such large, long-term mortgages, rates are really what matter. It is more likely that rates and the total cost of home ownership will rise sometime in 2011.

Now for question no. 2: Is a house a good investment? Strictly looking at the dollars, a typical median-priced home’s value would have to increase about 3% every year for three decades to recoup your total cost, including your 20% down payment (but excluding property taxes and maintenance.)

That is likely, but (we all hope) you could do better in the stock market.

The key point to remember is this: Buying a fairly priced home at today’s rates may be the “best deal you’ll ever get.” And, who knows? It may turn out to be a good investment too!