Don’t believe me when I say now is a good time to be in the real estate business? Check out this article from the Wall Street Journal:
The Wall Street Journal, June Fletcher (03/27/2009)
The housing market is looking healthier. Here are six reasons why now is the time to jump into the market.
1. Uncle Sam is willing to help. First-time buyers (defined as anyone who hasn’t owned a home in the last three years) are entitled to a maximum $8,000 tax credit; interest rates are at record lows; and the Federal Reserve is doing its best to make mortgage loans available.
2. People have to live somewhere. About 800,000 new households are formed each year in this country, ensuring that the housing market will tighten, even if the economy doesn’t soar.
3. Borrowers leverage their investment. If you put $10,000 into the stock market and it earns 10 percent, you’ve earned $1,000. If you put $10,000 down on a home and its values increases 10 percent, you’ve made $10,000.
4. When prices come back up, you’ll have instant equity. In parts of the country where foreclosures have driven down prices, better times will mean the price of the home you buy will rise rapidly.
5. Mortgage costs stay the same. If you get a fixed-rate mortgage, the monthly payment stays the same – while everything else, including rent, goes upward.
6. You own it. There is something comforting in the notion that your home is your own. You can paint it any color you want, let the dog run in the back yard and hang a swing for the kids in the front.
NAR’s 2008 Investment and Vacation Home Buyers Survey shows vacation-home sales dropped 30.8 percent to 512,000 last year from 740,000 in 2007. Meanwhile, investment-home sales fell 17.2 percent to 1.12 million in 2008 from 1.35 million in 2007. Primary residence sales declined 13.2 percent to 3.77 million in 2008 from 4.34 million in 2007.
Despite weakening second home purchases in 2008, the long-term demand looks favorable for the second-home market because there are large numbers of people in the prime years for buying a second home.
Currently, 39.2 million people in the United States are ages 50 to 59—a group that dominated sales in the first part of this decade. An additional 44.8 million people are between 40 and 49, and another 40.7 million are 30 to 39.
“While economic factors can affect sales from one year to the next, the fundamental demand from these large population groups will remain,” says NAR chief economist Lawrence Yu. “Given that most people become interested in buying a second home in their 40s, the bulge of population approaching middle age should drive the second-home market over the next decade.”
The median price of a vacation home was $150,000 in 2008, down 23.1 percent from $195,000 in 2007. The typical investment property cost $108,000 last year, which is 28 percent below the 2007 median of $150,000.
“As in the market for primary residences, it appears that many sales of deeply discounted distressed homes are pulling down the median price in the second-home market as well,” Yun says.
Yun says lifestyle considerations are the single most important factor in the vacation home market.
“People are buying weekend homes or recreational property to use themselves or for a family retreat—investment considerations are secondary for most vacation-home buyers with relatively modest interest in renting,” he says.
2008 Second-Home Market Declines
The combination of vacation- and investment-home sales slipped to 30 percent of all existing- and new-home transactions in 2008, according to the NATIONAL ASSOCIATION OF REALTORS ®’ latest report.
However, more than four out of 10 investment buyers and more than three in 10 vacation-home buyers paid cash for their properties, with large percentages indicating that portfolio diversification was a factor in their purchase decision.
The market share of homes purchased for investment was 21 percent last year, unchanged from 2007, while another 9 percent were vacation homes, compared with a 12 percent market share in 2007. The total share of second homes declined from 33 percent of all transactions in 2007. In 2005, the peak year for home speculation, 40 percent of sales were second homes.