Home Buying 2012: Cities, Mortgages, Foreclosures, & Savings

house on a hill illustrationIf there is anything consumers are leery of right now, it’s real estate. We never know if the market has hit bottom or if it will drop some more. It’s unclear how many more foreclosures will come on the market to further reduce home values. Homeowners are not sure if it’s ever a good time to sell and upsize or downsize. Dreams and life plans are on hold.

The job market is not stable. It’s frightening to think of getting laid off after buying a home or having to get another job in a different location.

The flexibility and mobility that renting offers seems like a sensible solution to these issues.

But is it better to rent in this economy? Experts say no.

Buying  a home in 2012

There are quite a few variables, but in general, it is cheaper to buy than rent right now. Rents are going up 4-5% a year, while home values are increasing only 2% or less.

The costs incurred to purchase a home can be recovered in as little as two years with the money saved by not paying rent. To make a purchase pay off, you have to be willing to stay in the house for about seven years. This is actually the average time a family stays in a home. But in seven years, you will have paid off the purchase costs and allowed the home to appreciate a bit.

Home buying and renting by region

Your savings will depend on the location. Cities that were hit hard with foreclosures, such as Michigan, Florida and Ohio, will offer the greatest savings and fastest payback. Other cities, such as San Francisco, New York and Los Angeles are still better places to buy, but the savings may be half as much. You could save several hundred to over a thousand dollars a month, though, which is nothing to pass up!

Of course, you have to secure a mortgage, which is trying in itself. You have to have been in your job at least two years, and you need impeccable credit. Even then, a real estate agent friend of mine said lenders are doing anything they can to not lend money. It’s very difficult.

You also need a sizable down payment, sometimes 20%. This is where a lot of potential buyers get hung up. It’s hard to make ends meet these days, let alone save. Parents and other family members may be able to help out with a down payment, though. It never hurts to ask.

Homeowership, occupancy, and ROI

Once you have a mortgage, you need to stay in the house for at least seven years, longer if you’d like to really realize a return on your investment. Remember when a house was a lifetime investment that was sold for retirement money? Those days are gone. Some areas have minimal returns, but mostly, we are a mobile society now, moving to where there are jobs or better weather for heath reasons or just for a change of scenery. We are not tied to ‘home’ anymore.

Home buying for personal reasons

There are personal reasons for buying a house, too, and I fall into this category. You own your house. You can paint it, add onto it or landscape the yard with whimsy without having to ask anyone’s permission. It offers freedom and independence. I think this will keep people buying instead of renting, no matter the market.

If you are a renter and wondering if it’s time to buy, look into it! Call some real estate agencies, talk to some lenders and ask questions at the title company. All these people will be able to give you a picture of the market in your area, and you might get inspired to get rid of your landlord!

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