When listening to the daily speculation on the housing situation, many young families wonder if this is the time to buy. Certainly there is a surplus of housing on the market-and at much lower prices than it would have been a few months ago. Interest rates on a thirty-year fixed mortgage average about 4.65%. Yet, many prospective buyers hesitate. Has the housing market bottomed out? Will they go lower? Will they ever go up?
These possible buyers wonder if they will lose money on housing purchased now. Their concerns are valid: Many mortgage holders are so far underwater that only an act of God will get them out of the mess they’re in. Certainly, many will face foreclosure in the near future if there aren’t major changes made in the terms of their loans. They hear rumors of housing in several major cities being offered at rock-bottom prices. In fact, in Detroit you can buy a house on a credit card-even with the card nearly maxed out. These homes are going for such low prices that some could be bought with the change between the couch cushions. Will a home they buy now lose value to the point that they have no equity in a few years?
In cutting through the hype-such as Detroit’s $500 homes, one realizes that a home with true worth will never be worth nothing. Housing can only drop just so far and no farther. Homes in certain neighborhoods, in certain cities had little value to begin with. These were neighborhoods with deteriorating housing, deteriorating standards of living and deteriorating economies. Many of the homes in such neighborhoods are only one of the 70% vacant homes on the block, abandoned and gutted by scrap scavengers. Banks and absentee owners are desperate to unload these houses to avoid further taxes. The homes won’t sell because of poor neighborhoods, a failing and bankrupt school system, high crime and lack of employment. They are as close to a no-value property as you can find.
In most cities and neighborhoods, things are very different. Foreclosed or near-foreclosure properties in nice neighborhood are available for half of what they would have sold for two years ago. Within a mile of the city limits of Detroit, homes in such suburbs as Livonia or Gross Pointe are holding their value better than many less affluent areas. There are bargains here-and the occasional foreclosed or bank-owned property, but the neighborhood is not in jeopardy, the schools are excellent, crime is close to non-existent. Buying distressed property in these areas means you are likely seeing the lowest price that property will ever be appraised for. These values will go up as the recession eases.
So, if buying a property to call home for a few years-a property to live in-this is a good time to buy. Low interest rates, coupled with bargain-basement prices as people find they need to migrate to other work can garner some real gems. Locked into the right, fixed mortgage with an affordable payment, it won’t matter over the short-term if property values drop in the next few months. The worst that could happen to your long-term investment is that property tax evaluations might go down, saving you some cash. Declining property values hurt only those who wish to sell. If you aren’t intending to try to turn a quick profit, you will still be there, with your low monthly payment and slowly rising property taxes for several years while home values rebound. When the time comes in a few years to move up to extra bedrooms for the kids and a home office for yourself, you will likely make a decent profit on the sale.
So, buy to flip? Maybe not yet! Buy to live in? Yes!