According to recent data, the U.S. savings rate of 0.4 percent for 2007, is the lowest in the world. It compares to 2.9 percent in the United Kingdom, 3.1 percent in Japan, 6.8 percent in Italy, 10.9 percent in Germany, 12.7 percent in France, 24 percent in China and 28 percent in India. We are known as a spending nation and up until very recently, it has gotten out of hand. Now we are in a spending hangover and some have confused spending and investing. I’ve talked with many people lately who are deferring to the future. Cancelling trips, delaying large purchases and putting more away for a rainy day stand in stark contrast to the not so distant days of blatant consumption.
Consumer confidence is near historical lows and the malaise of the media has begun to take a toll on families who are still in good shape. Warren Buffett’s editorial in the New York Times on October 17th said “A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful”. I think you would agree that according to this rule, this is a time to be greedy in most things. This, I believe includes real estate and I will tell you why.
Our local market was not swept up in the speculation boom that had valuations appreciating double digits per year throughout much of the country. For the past five years, we have been plodding along at roughly 3% per year while Oregon, for example, has recorded annual gains of over 11% per year. We did not boom and I believe we will not bust. The areas being hit hardest right now are still at price levels above 2003. During this time our building has slowed and recently, inventory has decreased. Rents have increased and our area is gaining population not losing it. In short, our area is not in the same position as much of the country. We have much pent up demand, good affordability and we are poised for a quick rebound. So you may ask, why not wait until you are sure the market is on the upswing? My answer to you is that you can never know when it is the best time to buy, you can only ever know when it was the best time to buy. There are also some other great benefits to buying now rather than waiting.
Our local market was not swept up in the speculation boom that had valuations appreciating double digits per year throughout much of the country. For the past five years, we have been plodding along at roughly 3% per year while Oregon, for example, has recorded annual gains of over 11% per year. We did not boom and I believe we will not bust. The areas being hit hardest right now are still at price levels above 2003. During this time our building has slowed and recently, inventory has decreased. Rents have increased and our area is gaining population not losing it. In short, our area is not in the same position as much of the country. We have much pent up demand, good affordability and we are poised for a quick rebound. So you may ask, why not wait until you are sure the market is on the upswing? My answer to you is that you can never know when it is the best time to buy, you can only ever know when it was the best time to buy. There are also some other great benefits to buying now rather than waiting.
These include:
· Rates are low now and will go up after the recovery.
· Less competition for homes and good deals to be had.
· Relaxed pace of search vs. multiple offers.
· There is no guarantee you are going to save money by waiting, prices locally have been stable to increasing.
· The best time to buy is when others are fearful.
· You get to live in and enjoy your new home!
Let me address the first point. At this writing, interest rates are in the low 5’s, at levels that have only been touched a few times. What makes a home affordable? If a homeowner can comfortably make the payments a house is affordable. Every 1/2 point drop in interest rates is equivalent to roughly a 5% drop in price. Here is an example:
· Rates are low now and will go up after the recovery.
· Less competition for homes and good deals to be had.
· Relaxed pace of search vs. multiple offers.
· There is no guarantee you are going to save money by waiting, prices locally have been stable to increasing.
· The best time to buy is when others are fearful.
· You get to live in and enjoy your new home!
Let me address the first point. At this writing, interest rates are in the low 5’s, at levels that have only been touched a few times. What makes a home affordable? If a homeowner can comfortably make the payments a house is affordable. Every 1/2 point drop in interest rates is equivalent to roughly a 5% drop in price. Here is an example:
Buy Now
Price $400,000
Down Pmt. $40,000
Amt. Borrowed $360,000
Interest Rate 5.25%
Interest $23,844
Interest per mo. $1,987
Price $400,000
Down Pmt. $40,000
Amt. Borrowed $360,000
Interest Rate 5.25%
Interest $23,844
Interest per mo. $1,987
Buy Later
Price $400,000
Down Pmt. $40,000
Amt. Borrowed $360,000
Interest Rate 6.5%
Interest $26,599
Interest per mo. $2,216
In fact, to have equal payments you could buy a house now that is 10% more expense rather than wait for better times when the rates increase. Not only do you take advantage of the great rates, you are sure to participate in the appreciation when the cycle turns around.
If you would like more information about your specific situation please don’t hesitate to call. I’d love to help.
